Zeroing in on your target

All businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.


Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.


However, there are times when subsequent events show that on occasion the best business decision was to leave it to your competitors.


When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.


The upside of such fiscal discipline carries its own rewards.

 

Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

 

Spot the fault line

 

The overriding lesson from the calamities in the global financial mess was that the monitoring systems were inherently flawed.

Last week in what is largely viewed as a symbolic process Fabrice Tourre the former Goldman Sachs Banker went on civil trial in New York  on charges of defrauding investors .

There is no dispute that, in exchange for a $15m fee to Goldman, Mr Tourre helped Paulson & Co, a hedge fund, create a complex security named Abacus out of mortgage-backed bonds in order for the fund to profit from an anticipated collapse in the housing market. For Paulson it was a spectacular success; for those on the other side of the trade, not so much

 An email written by Tourre has become a metaphor for the whole financial mess which engulfed global markets and institutions. In January 2007 as the subprime meltdown was beginning Tourre wrote “The whole building is about to collapse anytime now. Only potential survivor, the fabulous Fab...standing in the middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstrosities!!!” 

Exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”. 

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet.

What’s the worst that could happen following a spectacular flame out?

Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high.

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse. 

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances.

The danger of pushing it too far

 

The most important component in any business relationship is the question of trust.

 

The ultimate demonstration of trust and good faith is when a Supplier delivers goods to a Customer on Credit terms.

 

It therefore is incumbent on the Buyer that they acknowledge this act of trust and observe the agreed payment terms.

 

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall. Once a Supplier feels that their Buyer is taking undue advantage the relationship is damaged sometimes irreparably.

 

For any relationship to be sustained there has to be mutual benefit. When a Buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.

 

 

Make service your USP

 

We are operating in times when everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

 

It is a paradox that as times become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.

 

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

 

Little wonder that they choose to vote with their feet. Customer service is not a difficult act to pull off – in reality all that is required is to give the Customer the feeling that their business is important and they are valued not just “one of a number” or even worse a nuisance.

 

Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

 

Whenever it rains the banks want their umbrellas back

 

Despite previous rhetoric it is now apparent that some banks are still trying to increase their reserves, rather than lend more money out.

 

New figures from the banks themselves confirm that lending to businesses is continuing to fall.

 

Lending from the UK Government Enterprise Finance Guarantee scheme has dropped to record £66 million low in the first quarter of 2013. The EFG scheme was introduced in 2009 to assist SMEs to obtain loans.

 

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

 

Prior to the credit crunch it was not uncommon for companies to use loans or overdrafts to settle VAT and tax bills but these companies are finding it hard to do so in the present climate.

 

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation.

 

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely.

 

Ironically it is the activities of Banks themselves who precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

 

Action this day

When a problem comes home to roost it prompts a round of head scratching
and the standard response “why did that go wrong?”

 

The answer is all too often glaringly obvious and boils down to companies failing to address problem issues early enough to avoid the oncoming crisis.

 

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

 

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

 

The operating style of many doomed companies can be likened to Nero’s pastime of fiddling whilst Rome burns.

 

Time to gain control

It is incomprehensible that even in these difficult economic times many companies continue to adopt a relaxed approach towards their financial controls.

 

These companies fail to recognise the need for strict discipline in areas of Stock turn and control but what is even more disturbing in the reaction to the Debtors book.

 

As more and more Customers seek actively to delay payment to Suppliers this element of business policing is even more critical.

 

When a Customer exceeds the agreed payment terms, they are in reality using the Supplier as an alternate (unsecured overdraft).

 

This is a situation that can easily spiral out of control so that in a worst case scenario the Supplier is forced to keep “supporting” the errant Customer for fear of realising a bad debt.

 

Think of the parallel to the EU restructuring of sovereign debt Ireland, Greece, Portugal to name a few, it is a slippery path.

 

Take a long hard look at your accounts receivable – are you happy to see 30 days drift into 60 and beyond? Have you considered the damage that is being done to your company’s financial position?

 

It may well be that you conclude that an overall appraisal of your business is overdue -this is where I can help.

 

Why not get in touch with me at gordon.blackburn1@btinternet.com and I’ll help you re-establish control.