At NCI, we have a broad variety of clients covering all industries across Australia and New Zealand. We believe the feedback we receive is an accurate representation of the current conditions credit managers and CFO's are facing. Let me share with you some challenges from the past 12-months and concerns for the coming year.
What were Credit Managers' concerns over the previous 12-months?
1. Risk monitoring –The last year has seen many large failures that impacted on business and consumer confidence, such as Arrium, Channel 10, Bloomer Construction and Dick Smith. The experts knew these companies faced challenges, but many continued to support trade based on history.
2. Late payers - There was a significant increase in the level of overdue debts and collection actions in 2016/17. The NCI Trade Credit Risk Index noted significant jumps in the credit risk score during this time, acknowledging the heavy weight on the shoulders of credit managers to collect debts efficiently.
3. The building sector - The building sector was the most difficult industry to collect monies from and recorded a high level of insolvencies. During 2016/17 the Building and Hardware industries have recorded almost 1 in 4 claims received by NCI.
Not only do we look to understand past concerns, we need to understand where credit managers believe risks lie in the future. Our feedback suggests the following conclusions:
1. Insolvency levels - We typically experience a higher level of insolvencies in the months of March and April. This year, it started in February and continued at higher levels, to the end of the financial year. March 2017 saw NCI record our highest level of claim submissions since the height of the GFC (and in our 30 year history).
2. Collections –Receiving timely payments from debtors seems to be one of the biggest concerns for credit managers in 2017 and this is supported by our statistics. This suggests there is stress within the marketplace regarding the ability for businesses to collect on time and that current business conditions remain tough for many.
3. Customers – Or finding the 'right' customers and assessing them for their creditworthiness. There are many options for businesses to purchase information to support assessments for credit risk. But is now the time to revert to cheap 'tick and flick' assessment reports with untested scores, or ratings?
In the current environment, it may be more important to ramp up resources in the credit department to focus on the importance of customer assessments and the information you obtained to justify trade.
From my experience, it is always better to put the effort in at the front end, rather than spending hours of unproductive work in collection and legal action, or worse still, sitting at a creditors meeting trying to recover a few cents.
So what should I do?
In reviewing the hundreds of comments we received from clients in our survey, it is clear the above are challenges and concerns for many. It must be acknowledged that the amount of time and effort in managing credit risk, the importance of collecting payment early, and regularly monitoring risk, is as critical as it has ever been.
By Kirk Cheesman, Managing Director of National Credit Insurance (Brokers) and has been working in the credit industry for over 25 years.