Playing the game or subliminal warning?

In the past when suppliers followed up on overdue payments the traditional reply from recalcitrant debtors was “the cheque is in the post”.

This tactic generally bought some breathing space as suppliers met this response with a weary resignation.

Times have moved on and the latest mantra is “its set up for next week’s payment run”.

Basically the name of the game remains the same, buy some time - achieve a payment extension thereby effectively squeezing the supplier’s margin.

Obviously it is a difficult balancing act between keeping the customer happy and managing your own company’s cash-flow.

However, irrespective of any other consideration it is vital to keep full control of receivables.

At the very least delays in payment will impact on the bottom line; in the worst case scenario neglecting to strictly monitor a failing company could result in a total write off.

Early warning signals

Very few companies implode like a supernova.

The distress signals are visible for some time before the flame out.

Any analysis of a company’s published accounts or even monthly management accounts are by definition “out of date”.

It is vitally important that all counter parties are monitored closely and in “real time”.

In the case of customers look out for unusual ordering patterns, repeated delays in payments – these are early indicators of more serious problems ahead.

For any organisation facing mounting problems it is obvious that the solutions will of necessity be painful. However, radical and decisive surgery is often the only way to ensure a patient’s survival.

Many companies adopt the Mr Micawber attitude that “something will turn up”.

In the overwhelming majority of such cases the only people likely to turn up are the administrators/liquidators.

Be it merely inertia or fear of addressing the issue the outcome will remain the same.

 

Master of your own destiny

Every organisation has a potentially winning weapon in their armoury namely the opportunity to offer excellent customer service.

In these difficult 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 trading conditions 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 telephone answering through 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.

 

Sometimes it’s best to say no

In business as in poker there are times when discretion is the better part of valour.

Put simply, some of the best business deals are those you turn away.

All organisations operating in today’s climate need to rigorously monitor their commercial exposure.

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

However an objective assessment may well lead to the conclusion that in this instance the business would be left to others.

Stricter controls over such elements as payment terms and credit limits will lead to reduced turnover.

However there is a reward for such fiscal discipline. Avoiding defaults by customers not only protects the company’s bottom line but allows focus to be placed on more profitable activities.

 

Caveat emptor

The accusations of suspect accounting at the British technology firm Autonomy before its 2011 acquisition by Hewlett-Packard have taken a fresh turn.

Meg Whitman, the chief executive who took over as the acquisition was being completed, blamed a "wilful effort" to inflate the company's figures, and that they "severely impacted HP management's ability to fairly value Autonomy at the time of the deal".

A fresh cache of emails and other documents have emerged some of which point to the need for “radical action” to stop falling sales a year before the takeover.

Deloitte who audited Autonomy’s accounts said “it accepted decisions of management” to recognise hardware sales in its accounts as “sales and marketing”.

Hewlett-Packard says that this was a mechanism of covering up hardware sales and that Autonomy booked revenues before they were received and used a number of acquisitions to inflate the company’s value before the turnover.

Currently the FBI and the Serious Fraud Office continue to trawl through some 75,000 emails. Meanwhile the US$ 5 billion battle continues. begging the question that during the due diligence process how many Auditors examined the validity of the reported accounts?

This is not an isolated event, think of the Japanese camera giant Olympus, the company admitted to hiding losses on securities investments for decades.

To conduct this $1.7 billion fraud Olympus executives secretly liquidated hundreds of millions of dollars of Olympus investments, then lied to auditors by certifying that the investments still existed.

Ultimately the validity of a company’s accounts reflects the integrity of the company which is being audited.

 

If the company’s results are misrepresented through fraud, deviousness or sheer incompetence then the fall-out will be disastrous.

 

Identifying the fault line

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

 

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.

Apart from the self-inflicted wounds the general public also paid the price for this flawed culture.

 

One whistle-blower at Barclays was quoted as saying “It's a very high-pressure environment. The way we are paid means there is a lot of emphasis on getting people to invest more of their savings in the stock market than they should.' He added “Some of the things we sell —such as structured products — are rubbish.”

A little like bolting the stable door after the horse has bolted the regulatory authorities have now decided it is time for a closer scrutiny on bank, building society an insurance company staff being paid commission on sales.

 

This follows years of obvious laissez faire when for example it was quite normal for people to borrow based on self-certification of earnings, a recipe for disaster if ever there was one.

 

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

 

Boosting your company’s sales figures

The only way to grow your business is by increasing sales and revenue.

The following are some suggestions for achieving improved sales growth:

Concentrate efforts on broadening the customer base. If you are not adding customers then your business will stagnate.

Increase sales turnover by persuading buyers to purchase more. It will also benefit sales by increasing the frequency of transactions per customer.

Be alive to market trends and spikes in demand which will allow for an increase in the sales price.

Always concentrate your efforts on serving your premium customers i.e. those who are loyal and regular buyers.

There is no benefit to be gained from dealing with customers who show no loyalty and abuse payment terms.

Time spent on these accounts could be more profitably utilised in dealing with worthwhile accounts.

Essentially the more ideal customers the better your business.

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