Don’t get trapped in quicksand

When asked to review operating systems and strategic plans, I find it surprising that even in these difficult economic times many companies still adopt a lackadaisical approach to their financial controls.

These companies fail to recognise the need for strict discipline in respect 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). I have seen this situation 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 recent Eurozone debts (Eire/Greece etc) – 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?

Opportunity and risk - the ying and yang of commerce.

Every business transaction contains an element of risk, yet at the same time how adequate are the mechanics and systems that are in place to manage these risks? 

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions be they large corporations or smaller SME’s. 

In the never ending quest for larger profits many of the saner measures of business were jettisoned. 

An analysis of the most spectacular flame outs all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings. 

There has never been a more pressing need to examine all areas of exposure.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked. 

It is far better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3^rd Party appointed to do it for you .

Riding out the Storm

 Viewing the general air of gloom they now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill. With the benefit of hindsight the warning signs were there to see but these were readily ignored. One quotation springs to mind “They that sow the wind, shall reap the whirlwind"

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked.

Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and markets on a sustained stable footing.

Keeping the Customer satisfied

 In these times 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.

Concluding the initial business transaction is often the easiest part of a business relationship, it is the “repeat business” which provides long term rewards. Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

The Dragon ready to pounce

Since 1978, China's economy has doubled every eight years. Today, the average Chinese person has some ten times the purchasing power they had just a quarter century ago.

China was the engine room powering the Global boom of the early 21^st century, however there are signs now that the Dragon is catching its breath.

This is however only a temporary blip. For 18 of the past 20 centuries it had the largest economy in the world until the 19^th century and the industrial revolution.

China’s economy in 200111 was worth US4 11.3 trillion and forecast to rise to US4 18.7t trillion by 2016, whereas the US economy is forecast to grow at a slower pace in the same period from US$ 15.1 trillion to US$ 18.3 trillion.

At grass roots level households with an annual disposable income of US$ 10,000 are expected to quadruple from 57m in 2012 to 222m by 2020.

The implications are clear with dramatic impact to be felt on prices across the energy and agri commodity sectors.

At this time, European markets remain crucially important to China but with European economies in a fragile state the implication for Export growth is obvious.

You can’t always rely on the warning light

 

If you are operating a business in today’s environment you obviously relish a challenge, have you ever thought about taking up 3D Chess?

Particularly for the owners of SME’s it has never been harder to keep track of the various elements which are buffeting the business.

Now might be an appropriate time to run a check over those areas of the business most likely to cause problems in the coming months.

It is a self evident truth that most crises could have been averted by timely intervention. This is where an independent appraisal can identify areas of potential concern but more importantly the ways and means by which to address them.

The questions that need to be answered initially – are we positioned comfortably? Or are we in denial?

Everyman for himself

The new owners of Peacocks the clothing retailers have come up with a new wheeze – switching all their Suppliers to 90 day payment terms.

Such terms can only be served by larger organisation with adequate cash reserves. For the small to medium supplier it further ratchets up the pressure as Banks are unwilling to increase their credit lines.

For some time companies have sought to stretch the length of their payment terms by all manner of means both fair and foul.

As profit margins are further squeezed by increased operating costs the importance of maintaining cash flow is vital.

Business is hard-won in the current climate, but above all there has to be a commercial raison d’être for any transaction.

Mutual reciprocity has to be the basis for the Customer/Supplier relationship for it to remain worthwhile.