Flicking through CCR (Credit Collection and Risk) Magazine, the article “When the proverbial hits the fan” caught my eye — and not just because of the mental image that conjured up! In the article, Chris Wells talks about the opposing forces encountered by the credit control team when you consider that they are positioned between the sales team — who push for orders and are natural risk-takers —and the finance team who are focused on cash flow and are usually more risk-averse.
Chris puts the case for taking time to review a customer’s financial information before extending potentially risky credit terms, and this is a principle that applies to all businesses, large and small.
So, when a potential new customer offers to sell an unusually large amount of your product into a new market or new geographical area and requests generous payment terms, make sure you can answer the following questions, and keep a detailed record:
- How will this order impact your cash flow?
- Will a large amount of material need to be purchased and paid for, or will additional resources need to be brought in?
- How will this project impact your ability to fulfil other orders?
- Will the deal impact your other long-standing customers and how?
- What exactly is the risk?
- Could the risk be reduced (by delivering in stages, for example)?
- How does this potential customer pay their other suppliers?
- How does this customer’s financial position look?
- Have you obtained all information you can about this potential new customer, including details of decision-makers, purchasing and payment processes?
- Is the person placing the order authorised to do so?
- Will the business survive if you don’t get paid?
By answering these questions, you may well avoid the “proverbial” hitting the fan at all but if it does, it could be some time after the fact and the exact detail of your decision-making and risk assessment may be lost in the mists of time. That’s why it’s paramount to have a detailed record of absolutely everything, whether you are a small business or large organisation.
If your company is growing and you don’t have time to document details, talk to us about how you can get your house in order and put a process in place to minimise your exposure to risk — drop me an email or give me a call on 01628 487849.