ARTICLE...
Downturn Starts to Hit Hard
The full impact of the current economic downturn is being felt within the credit profession and research, undertaken by CCR, shows credit managers are cutting back on the amount of credit granted... and debts are already taking longer to collect.
The research, which focused on 200 consumer and commercial credit professionals, found 76% had noticed debts were taking longer to collect. The remaining percentage didn't notice any increase.
In terms of actual payment times, 52% said they had extended by a month or more, 28% by a fortnight, 14% by a week and 7% by three days or less.
The response of credit professionals has been telling. They have started to return to the basics. They have started to make collections calls earlier, begun to threaten increased legal charges, imposed late payment charges and penalty interest for the first time and they have even increased communications. Some lenders have taken a slightly different route and are offering incentives for customers who choose to go onto a direct debit scheme.
One respondent said: "We are chasing earlier, pushing harder, going legal earlier, and putting accounts on stop earlier."
Another explained: "We have begun more regular and proactive calling. Calling before invoices become due to make sure that they have received the bill and whether there are any problems with it."
"We have extended terms on reliable customers to help them through difficult periods and reduced credit limits on less reliable customers and stopped future orders on very unreliable customers until arrears have caught up. We are monitoring all accounts much more closely, with more frequent reviews of the aged debtors list. All staff have been given a refresher course in collections. All processes have been reviewed and the initial customer services call has been moved forward by a few days," added yet another respondent.
However, it isn't all plain sailing. Some credit professionals have noticed that the economic downturn has increased tensions between those in charge of the credit and the sales team, who don't want to upset the regular customers they see as good buyers.
The availability of credit certainly has fallen, with an incredible 84% of respondents saying they had restricted the amount of credit they had granted, with only 16% saying that it has remained unchanged.
On this subject, one of the respondents explained: "No business trading less than three years will be granted an account without direct debit or a continuous card mandate and, even if they do sign it, they will probably be asked for four to 12 weeks cash on delivery to build a history. We are being harder with our assessment of credit scores and we are lowering the amount of credit granted by about 20%. We are also a lot more cautious about who we take on."
Another said: "We have not changed the parameters we work to but today many credit limit increases and new business applications will fall outside these parameters and require detailed assessment. I am looking, in particular, very hard at a company's overdraft situation, who holds charges over them and what sector they trade in, as well as all the other critical points like payment performance.
"We are also looking to be more creative, for example offering 50% in advance, staged payments and making deals more frequently to try and minimise risk while maintaining trade."
One credit professional put it very simply: "The business has decided to relax credit terms rather than tighten up. Only time will tell if this is a wise move."
Meanwhile, many of the respondents suggested that the time was right for leading professionals within the industry to take control and be at the heart of their business' survival.
"In general terms the ones that have always had good collections procedures and credit checks in place are weathering the storm better," explained one respondent.
They continued: "There are customers that are entering difficult times and some will not survive, but early identification is the key. Many companies who have previously relied heavily on insurance policies will be the hardest hit. Sensible credit management in good times and bad creates the most solid base when a problem like we are now seeing occurs.
"Very few will come out of this recession without battle scars, but it will be survival of the companies who built their policies on rock and not sand."
Original article courtesy of CCR. For further information visit www.ccrmagazine.co.uk
