What effect has Covid had on credit for businesses ?

In a recent Zoom seminar, we were asked the question… ‘What effect has Covid had in industry ?’  Now you may see this as a very general question but in all honesty, there is a very general answer.

 

Debt levels have increased but it’s not necessarily all toxic debt, it’s more a case of people simply holding onto their money for longer.

 

You will know from our previous blogs that we’re all about education and action. Well now that you’re preparing for the New Year, it’s time to be informed and take the necessary steps to avoid watching your debtor days increase.

 

Through our discussions with various credit reference agencies, credit insurance companies and our client base, there’s a distinct trend that the pandemic has made credit limits tumble. Market uncertainty and the increase in late payment days has led to many a credit limit being reduced (and in some cases pulled completely) simply because the big insurance companies do not want the exposure and risk on their books.

 

As a result, now more than ever it is key to ensure that the limits that you are providing to your customers are still true and correct. A reduction in a customer’s credit limit is a good indicator that either that business or that industry is at higher risk than before and you must transfer that greater risk into your business dealings and offer smaller values on credit. The last thing you want to find is that your bad debt insurance does not cover you because you’ve provided credit above the proposed levels.

 

Whilst you are planning for the New Year, you must take steps to plan and prepare properly for not only new business but the return of existing business. As a business ourselves, we understand the allure and opportunity of a new contract and that is why we recommend that you protect yourself as much as possible:

 

  • Be aware of Regulations & Reporting
    • Recent new regulations came into force in the UK that require larger companies to report upon their payment practices (those with at least two of: turnover greater than £36m, £18m on the balance sheet and 250 employees).

Check large company average payment times https://www.gov.uk/check-when-businesses-pay-invoices

 

Due diligence & Credit Control Actions

  • Treat every customer as a potential Debtor – Like you, we like to think the best about people and none of us want to turn potential business away but you must be aware of who you are dealing with. People and businesses are not always what they first seem.
  • Check new and existing customers credit health on a regular basis (Both now and then at least quarterly).
    • Access credit referencing tools to help such as:
      • Experian
      • Equifax
      • Creditsafe
  • Do your background checks using websites e.g:

 

A New Year, A New Start. After the turmoil of 2020, let’s all take steps to ensure that 2021 is as profitable as it can be and let’s start as we mean to go on.

 

Have a very Merry Christmas and a Happy New Year, from all the team at Corp & Comm.

If you would like to discuss your current Credit Control process with a view to understanding how you can improve it or if you should be outsourcing it, please get in touch 01535 654 594 or info@corpandcomm.com

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