2. Confidence to do business 3. Jargon-busting 4. No payment? No problem 6. Stat track 8. Anywhere’s possible 10. All shapes and sizes
Credit means credit In association with:
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Welcome
The confidence
to do business BY Andrew Share, commercial director, Coface UK
If business confidence was a balloon, it’d be visibly deflating amid the current atmosphere of economic uncertainty
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rom the chaos surrounding Brexit to stagnating global growth, it’s no surprise businesses are feeling pessimistic. According to the Office for National Statistics’ latest figures, business investment fell by 1.1% in the third quarter of 2018 – the third consecutive quarter-onquarter decline. Other signs that show companies’ appetite for risk is shrinking include refusals to offer credit terms to customers in high-risk sectors from fear of bad debt and reluctance to commit to resource-intensive projects. Yet, those that hunker down until the economic weather has settled could find themselves looking back on this period with frustration. While we all know growing a business involves an element of risk, we sometimes forget a safety at all costs mentality can be just as damaging. However, there’s a way for businesses to both protect themselves from the risk of a financial shock and have the confidence to grow. Credit insurance is often wrongly associated with being risk-averse but this is a misconception Coface is working hard to overturn. As a global leader in the field, our role is to facilitate trade and growth for our 50,000 clients. This is partly possible because our policy holders are protected from the impact of a customer’s insolvency or protracted default, which provides peace of mind and the reassurance needed to use sales revenue to pre-order stock and trade on credit terms. Coface also helps clients focus their time and effort on financially healthy customers, given it only takes a few moments to check our database of 80 million companies and learn whether a prospective customer is creditworthy. This supplement will shed further light on how credit insurance works and makes all the difference for dynamic and ambitious businesses, including those in volatile sectors. We hope you find it an interesting read but more importantly, we hope it inspires you to use credit insurance as part of your growth strategy.
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break down
Jargon-busting There’s some financial jargon confusing enough to make even the most savvy business leaders clam up. But not understanding it can be crippling, so read it here in plain English
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redit insurance, delayed payments, protracted default – not exactly the kind of lingo you hear at parties. But the tongue-twisting syllables actually mask some really simple and important concepts every business owner must be at least be aware of. Bad debt Whether it’s due to bankruptcy or inexplicably going silent, when a customer doesn’t pay for what you sold them, or isn’t likely to do so, it’s known as a bad debt. In other words, their credit becomes worthless as you can’t foreseeably collect it. For SMEs, bad debts can prove particularly challenging. Late and delayed payments In the eyes of the law, late payments are when money for goods or services takes more than 60 days to arrive after the customer receives their invoice or the goods and services are delivered and the mutually agreed
payment date between the seller and the buyer passes. The problem here lies in the fact businesses need regular income to cover monthly overheads, wages and other expenses, especially if they’re relying on just a few sales coming in. And although you’re permitted to charge late-paying customers 8% interest, a delayed payment of up to 60 days is enough to seriously harm, if not destroy, small companies. Credit insurance This means money owed to you or your business gets received one way or another. This can mean providers putting pressure on late-payers on your behalf, sending a crack legal team to sort out non-payers or identifying a debt which can’t be collected. It can be a lifesaver for companies hoping to grow fast yet struggling to keep tabs on an everincreasing list of clients, as well as exporters who can trade without fear of being duped by companies operating under different rules overseas. CREDIT MEANS CREDIT | COFACE
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PAYMENT WOES
No payment?
No problem
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PAYMENT WOES
With seven in ten small businesses battling legal disputes over late payments, a solution like credit insurance was nothing short of vital for these companies
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f you’re a business owner you needn’t be told late, delayed and non-payments are big issues for SMEs. In fact, chancellor Philip Hammond labelled late payments “the continuing scourge” in his 2018 spring statement – a trend he sought to “eliminate” – and reinforced the government’s commitment to fight them this year. However, thanks to credit insurance, these businesses aren’t worried: Syed Nauman, credit manager EMEA, Theory In this trade, wholesale fashion [retailers] are buying [our] jumpers for winter in the middle of summer, right? But what happens if you have a really mild winter like we’ve experienced previously? You can’t sell them to your customers because they’re all going to the beach or are in light jackets or t-shirts, because it’s too warm. These factors all play into late payments. I don’t think customers intentionally plan on not paying, we have to have some element of good faith. But we also have to understand the fashion and wholesale market when we’re supplying high-end independent stores. They’re subject to these variations, so we’ve got to find a happy medium. We’ve had several cases but through Coface and our own team here we tend to reach out to customers. Only when the relationship’s totally broken down do we allow Coface to take over completely. Thankfully it hasn’t happened that frequently but when it has it’s paid off really well to be honest because the pressure’s not only coming from us, it’s coming from Coface. The client tends to pay up or agree to
revised terms with us where there have been late payments. Zoe Webster, accounts administrator, Elefant Gratings We obtained cover after experiencing a few cases of non-payment. Most of our customers adhere to our payment terms but if this doesn’t happen, credit insurance helps to alleviate the stress as it means we can still meet our obligations to pay factories, suppliers and distributors on time. The onscreen rating gives a great indication of company risk and the system also enables us to view progress on the overdue invoices that [our provider] is chasing on our behalf. Sergio Vignone, credit manager, Duferco International Trading Holding In 2014, we made our biggest claim for £500,000. Everything went smoothly and we received payment 30 days after declaring the loss. That sort of sum will destroy a year’s profit and it shows why we won’t trade without cover – the risk is just too much, even for customers that we have known for the longest time. We used [credit insurance] twice in the last year in the UK to recover late payments and [it] was brilliant. In one case, we received the money just two or three days before the company filed for bankruptcy. As traders, we obtain working capital from our bank and then we receive our money when the customer pays. The banks themselves make credit insurance a condition for access to trade finance but we do not want to open our own pockets if it all does go wrong. John Hounsell, finance director, TCS Media As a media planning agency, we are the principal contact and we are liable for
the cost, whether or not the client pays us. When you consider that a campaign might cost £1m and our return is typically a small agency commission, we obviously need protection in the event of a client’s default. It has been a while since we had to make a claim – the last one was for £250,000 about ten years ago. However, one of the major reasons we have stuck with [credit insurance] all this time is they always paid promptly after liability has been accepted, even with such big claims. That is obviously very important for our cashflow. Credit limits are not always a top priority for staff when they go out to win clients. If a credit limit is refused, we always insist on pre-payment so we aren’t left holding the baby. Sometimes the client goes elsewhere and there may be other agencies that are prepared to take on the business. However, we know some small agencies have gone under owing a lot of money and we don’t want to take that chance. Rob Bowrey, chairman, Stanley Gibson Our payment terms are between 30 and 50 days and we generally report late payments after 80 days or when we know there is a problem. For example, we had a regular customer who usually settled their bill at 40 days. After 50 days had passed, we reported the debt because we wanted the customer to know we were taking the matter seriously. Sure enough, [our provider’s] collections team was able to apply the necessary pressure and collect the payment for us. It’s simple: we won’t offer credit terms to a customer unless we can obtain insurance cover for them. If they aren’t insurable, they have to pay for the goods upfront or it’s no deal. CREDIT MEANS CREDIT | COFACE
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the numbers
Sources: Chartered Institute of Credit Management / Graydon, BACs, Coface
Stat track £9,000 is the average cost for each business to recover overdue funds
27.2% of invoices from small businesses are paid late in the UK
£6.7bn is the collective cost small businesses face to chase up money they’re owed
19,894
39 days is the average time payments take to arrive, with 33% arriving between 31 and 60 days and only 51.7% within 30 days
is the number of corporate insolvencies taking place across 2019
£92m
was paid from credit insurers to UK companies in 2018’s second quarter – the highest ever sum and equal to £1m a day 06
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One unpaid bill – that’s all it takes to kill a business One of the largest single dangers to your business is non-payment. An interruption in your cash flow means you can’t pay your bills, which could have a serious knock-on effect on one of your customers, potentially disrupting the whole supply chain. One domino falls and the whole row collapses.
So how can you protect your business?
Amid current economic uncertainty, it makes sense to protect your company from sudden financial shocks. By working with the right business partner, you can secure the future of your business, stay informed and ensure you’re ready to take advantage of new opportunities.
To find out how Coface can support your business, call 0800 085 6848 or visit cofaceitfirst.com Coface is authorised in France by the Autorité de Contrôle Prudentiel et de Résolution. In the UK Coface is subject to limited regulation by the Financial Conduct Authority and in Ireland Coface is regulated by the Central Bank of Ireland.
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hawkins & brimble
Anywhere’s possible With peace of mind from its credit insurance, Hawkins & Brimble has skyrocketed since its birth three years ago and gained the confidence to export to 15 nations
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Client Profile.indd 1
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hawkins & brimble
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awkins & Brimble, the men’s grooming brand, is kind of a big deal. Not only has it already sold over 350,000 products since its launch in December 2016, totalling something above £1.3m in revenue, but it’s spread its wings to 15 countries across the world. “We’re what they call a mature startup,” describes Stephen Shortt, founder and CEO. Given this has all happened in just over two years, it should be obvious by now Hawkins & Brimble is gunning to soon be the leading global name for natural male grooming. “We’re projecting £2.8m sales in year three with over 3,000 stores globally already,” Shortt adds. However, he admits this wouldn’t be possible without one crucial ingredient. Before launching his startup Shortt spent a decade at Intamarque, the marketing agency, as commercial director. As part of his role, using credit insurance was a no-brainer. “Credit insurance is security obviously,” Shortt says. “It gives us confidence to be able to trade with our distributors and customers globally without worrying about debt.” Indeed, when there’s an increasing number of clients to handle it’s a given at least one will play up with late payments, nonpayments and the likes. In fact, 43% of SMEs experienced late payments across 2018 according to BACS, the automated payment provider. If one of them happens to be for a particularly big sale, you’re in trouble. “When
your invoices and business gets to a certain size then you’re at more risk obviously,” Shortt continues. So when the time came to part ways with Intamarque and launch his male grooming startup, there was one thing Shortt had to get straight from the get-go to ensure there were no boundaries to growth. “I used to use Coface in my last business so I [knew] to do it again,” he says. After hitting up his old contact and one web enquiry later, Hawkins & Brimble was equipped to go anywhere it wanted. “Obviously there’s some contract stuff to do but at the end of the day I think it’s pretty straightforward, quite easy,” he remembers of the process, which also involved putting the details of ideal customers into his provider’s online system. Before even encountering things like late payments for Coface to come in and deal with, Hawkins & Brimble felt the benefits of credit insurance immediately. Armed with the confidence its provider is available if things go South with overseas clients, it’s no wonder the startup’s grown so much so quickly. “We look at more markets further afield if Coface cover them,” Shortt says. “We’re already exporting to different countries.” This isn’t to mention credit insurance effectively serving as a free credit check as another layer of certainty. “If you get the insurance it serves the same purpose,” Shortt explains. With the seemingly endless closures
of high street stores from Debenhams to House of Fraser, these are securities Shortt wouldn’t dream of passing up in this day and age. “It’s unlikely that some [clients] will go bust but you just don’t know with some big retailers nowadays,” he contemplates. Fortunately, he can consider himself not one of them, which is a blessing given his sector’s at a medium credit risk according to research by Coface. “We luckily haven’t been caught,” Shortt says. While credit insurance used to be viewed as a luxury for big names that can afford it, rather than an essential for those starting out, times and prices have certainly changed. “I don’t think in this day and age you [can] do that,” he advises to those ignoring credit insurance. “My advice would be to get a quote because it’ll be possibly lower than [you] have imagined.” Indeed, compared to potential losses from lack of safeguarding in today’s ambiguous times, purchasing credit insurance may soon become the standard for businesses of all shapes and sizes. “If you’re running a successful business and you get a bad debt, that really can take you back months if not years in terms of loss of profitability,” Shortt concludes. “From my perspective, for the cost of doing credit insurance we could lose £100,000 or more if one of our customers goes bust. So it’s a no-brainer really.” CREDIT MEANS CREDIT | COFACE
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any sector
All shapes
and sizes
Not all industries are created equal but they’re given the same opportunities – and credit insurance is one that should never be passed up to let competitors take the lead
D
espite credit insurance sounding like a phrase restricted to the grey confines of an accountant’s filing cabinet, this couldn’t be further from the truth. From fashion to farming, here are just a few of the industries you can be sure to find it in. Reap what you sow Agriculture quite literally involves planting seeds for future success rather than reaping results immediately. As such, buckets of patience are required for anything to do with this industry. “Agriculture is very different from retail or distribution businesses because the farm cycle is spread over one year and the credit terms are three to six months, rather than the conventional 30 days,” explains John O’Connell, group treasurer of Origin Enterprises, the agriservices group. However, even having the patience of a saint won’t guarantee customers will cough up. If nothing arrives after three to six months of waiting, a resolution is needed fast and Origin Enterprises didn’t want to wait until that day. “As a PLC, we want to protect ourselves from sudden shocks to the system,” O’Connell says. Getting a top-notch insurance provider was therefore vital. “If insurance isn’t there for a rainy day then its value
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any sector
is debatable,” O’Connell says. “Whenever we have had to make a claim under the policy, Coface has acted honourably and the process has been managed smoothly and expeditiously.” He remembers one occasion where his provider negotiated a debtor’s outstanding payment down to a virtually immaterial level. “[They have] a very good ear for the agriculture market in the UK and Ireland,” O’Connell explains. Moreover, with around 8,000 clients with their own wants and needs, there’s a lot to keep an eye on and cater for. “We provide agronomy services to more than 8,000 customers and it is not realistic to apply for a dedicated limit for each of them,” O’Connell says. With insurance, Origin Enterprises is able to axe a lot of this unnecessary bureaucracy with a spectrum of flexible options. “With Coface, we apply for credit limits on new customers but after a year, we can apply a formulated limit and make claims, provided we have evidence of their trading history,” O’Connell adds. Having used credit insurance for over a decade now, it’s clearly a keeper for Origin Enterprises. Build a foundation Construction contractors typically deal with multiple companies to get their materials, so beefing up their client book as much as possible is the only way to thrive as a supplier. It’s something Procon Readymix, the concrete supplier, was well aware of. But although necessary, frequently taking on new, unknown business can invite issues. “We therefore needed to work with new clients outside our usual territory but we wanted a way to alleviate the risk,” explains John Power, director of Procon Readymix. During a conversation with a client, one route stood out. “We asked a contractor we worked closely with for their advice and it turned out they were using credit insurance,” Power says. As with any new purchase, getting credit insurance wasn’t without apprehension over cost. But Power’s worries were quickly put at ease. “We were under the
impression that credit insurance would be expensive but it was pennies compared to the value of the goods we supply,” he recalls. There was even more ease when credit insurance started fixing current problems instead of just future ones. “It was quite an eye-opener to find that a client’s name was out of date or their business was part of a group,” Power says. With speed and flexibility in its arsenal, Procon Readymix is now always ready to bring its A-game to many contractors. Strut your stuff When instating the next big fashion trend you need as many eyeballs as possible getting hooked. For Theory, the wholesale clothing brand, supplying heavy hitters like Selfridges, Harrods and Net-a-Porter isn’t enough alone. “Independents are crucial, right?” reasons Syed Nauman, credit manager EMEA at Theory. This also requires getting products outside the comfort of Theory’s US headquarters. “[We] basically market to places like Italy [and] France just to widen our footprint,” Nauman adds. Of course, gunning for such exposure isn’t without risk. “If you’re dealing with people across the continent or globally, you need [credit] insurance,” Nauman says. “Especially in this current climate.” In fact, simply aiming to increase sales was enough to get Theory signing up to credit insurance once Nauman arrived at the company. “For companies that are looking to grow through volume sales, insurance is imperative,” he says. Ever since, Theory’s had the confidence to spread the business like wildfire. “We’ve got I think about 300 free-standing stores worldwide,” Nauman says. For this industry, the presence and exposure credit insurance allows is a godsend to say the least. “With insurance now we can offer [customers] Net 30 or Net 60 terms, which allow us to onboard more clients which allows us to get more stock out, which gives us more visibility,” he concludes. CREDIT MEANS CREDIT | COFACE
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Make sure you don’t take an unexpected fall You grant payment terms to your customers every day – it’s a routine way of doing business. But do you think of the risk you are taking? At Coface we know that the more volatile the business environment the more volatile a company’s payment behaviour can be. If you want to discuss how you can reduce your exposure to nonpayment or insolvency then talk to Coface today.
To find out how Coface can support your business call 0800 085 6848 or visit cofacetifirst.com Coface is authorised in France by the Autorité de Contrôle Prudentiel et de Résolution. In the UK Coface is subject to limited regulation by the Financial Conduct Authority and in Ireland Coface is regulated by the Central Bank of Ireland.
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