Press Releases - an exercise in hope rather than expectation!

It is always exciting when a plan comes together and no more so, than when the press pick-up on a press release, which you despatched in hope, rather than expectation!

Talking to the press is always fraught with apprehension. There is a natural tendency for the interviewee to focus on his or her message without paying sufficient attention to the needs and aspirations of the interviewer, whereas the interviewer will always have their own objectives which may not always align with the aspirations of the interviewee.

Where the interview is strategically important, it would always be good advice to seek support from a Public Relations professional and your Finance Director from FD eXcel will be able to introduce you to a PR consultancy, from our vast network of associates. Where the interview is less strategic, the interviewee should approach the event like they would an important presentation, where the more that you have prepared, the more successful the event. The most successful presentations address the interests of the audience whilst allowing the presenter to make the points that he/she is endeavouring to project.

In November, 2013 we launched FD eXcel and engaged the services of Hayley, from Nao Communications, a boutique PR agency with a background in both new and established businesses. Not only did Hayley draft the press release, she targeted a bespoke list of financial journalists as the first step in a campaign designed to raise our profile and over a period of time attract some editorial interest. Much to our surprise the press release was picked up by the publication FT Adviser which is a Financial Times publication aimed at the IFA marketplace.

Daniel Liberto, the reporter from FT Adviser, was interested in what we were doing and was keen to understand how our services fitted into the IFA market. He completed the interview, checked a couple of details with Hayley and we held our breath as to whether it would be published.

If you would like to read the article it can be accessed at http://goo.gl/M0j4hK and we will see where our next press release goes in January, when we announce a new high profile recruit to FD eXcel.

Institute of Chartered Accountants Economic Forecast available for download

Adding to the several other economic good new stories, the latest economic forecast from the Institute of Chartered Accountants is available for download at http://goo.gl/os7ob1

Major high street bank “killing off small businesses to seize assets for its own property empire" - The Sunday Times 24/11/2013

An incredible story in The Sunday Times today! As stated by the newspaper, a major high street bank “is killing off small businesses to seize assets for its own property empire, according to evidence referred to financial watchdogs by Vince Cable, the business secretary”. Not only is this the sort of story that newspapers should be publishing, it contains a warning to the whole business community.

On first read, the stories are truly shocking. They appear to relate to the difficult period 2007 through 2010 and most of the stories relate to falling property valuations, where the property was used as security for a substantial loan. Nothing surprising there, you might think!

The surprise is in the suggested collusion between the bank’s “special measures” team and the banks own property division. The paper suggests that in at least one example, the property division identified a development for which it had an “appetite” and two days later, the developer’s loan facility was withdrawn. In another example, there are allegations that the property division where given access to “sealed bids”, so that it could purchase properties out of administration at the lowest price. Other allegations relate to interest rate swaps and inferences about changed property valuations.

Although the allegations of mal practise are shocking, the underlying stories are not. Banks are businesses that owe a greater duty of care to their shareholders than any duty they might owe to their clients. Even though your bank manager might well be your friend, the bank never is. It’s relationships with its clients are covered by the contractual terms of the agreements that the bank and the client “agreed”.  Yet how many small businesses actually read those “agreements”, let alone understand the terms. If they understood the terms, why did so many businesses agree to interest rate swaps and if the banks truly felt a duty of care to their customers, why did they introduce such complex products for the SME market?

In employment law, the law recognises that the relationship between employer and employee is unequal and that the level of inequality can allow even reputable employers to take advantage of the relationship. Best practise therefore has always been for the employer to ensure that the employee takes independent legal advice before entering into an agreement where the employee forgoes rights, even when the agreement is clearly to the employee’s advantage. 

But for some strange reason, the same logic doesn’t seem to apply to the unequal relationship between a bank and its SME client. Banks are businesses, nothing more, and nobody should enter into complex business contracts without fully understanding the implications of that agreement, and if the client doesn’t have the expertise, they should take advice from an appropriate person, who might well be their part time consulting finance director!

(Also published at blog.fdexcel.com) 

FD eXcel is open for business!

 FD eXcel is open for business!

Announcing new UK FD Consulting Group

FD eXcel is a new group of consulting, part time Finance Directors who have joined forces to support their members to deliver “best in class” services to the SME market. 

The part time FD concept is already well established in the UK, with a number of companies providing the services of highly experienced commercial FD's at a fraction of the cost of a full time FD.  However, FD eXcel is different!

Unlike many other groups, FD eXcel is owned by its members; reinvesting all of its income back into the business. The main advantage for its clients is that the reduced costs of employing a part time FD are then not inflated by management fees, which in many cases can be up to 40%. A less obvious yet crucial advantage is because FD eXcel is not seeking to be a profit centre, as a group it is highly selective in its recruitment criteria. The client gets the best person for the job, not just any person for the job.  FD eXcel will never be the largest group of part time FD's, but does aspire to be the most effective.

FD eXcel’s Services include:

×                      Business Health Checks

×                      Cashflow Management

×                      Compliance

×                      Long Term & Exit Planning

×                      Mentoring & Coaching

×                      Reporting and KPI’s

×                      SAGE Training & Reselling

×                      Trusted Business Partner

 Whether it's one day a week or three days a month, the FD eXcel team is available to help with those difficult issues which are normally dealt with by full time FDs, but at a fraction of the cost.

FD eXcel is interested in talking to prospective clients today who are interested in driving their business forward by maximising the value of their investment in a part time FD.  The team are also looking forward to speaking to other experienced FD's who empathise with the FD eXcel model.

Contact the FD eXcel team at info@fdexcel.com or 01962 601100.  We look forward to working with you. 

Surviving Due Diligence

Although the term “Due Diligence” (DD) applies to any investigation prior to signing a contract & can even apply to a duty of care process, it is most commonly used in respect of the evaluation carried out by a potential purchaser, before an acquisition or significant investment.

It takes many forms but is normally carried out by the purchaser directly, by reporting accountants & or by the purchaser’s solicitors. There may well be the need to involve other professionals, possibly including IT consultants, property professionals, environmentalists & or an almost endless list of possibilities, depending on the complexity of the businesses. Professionals in each speciality are often employed by both parties, asking the questions, providing responses, evaluating answers & asking follow up questions.

The process is costly, almost always invasive & normally stressful for both parties to the transaction. Not only is it true that most potential transactions fail, it is also true that most transactions fail during due diligence. Getting it right, which means effective & quick, is important to both sides.

Top Tips for a Successful Outcome

Sellers need to prepare early. Preparing your business for sale not only includes profit & value maximisation but also includes preparing the responses & marshalling the data for those questions which it is possible to anticipate. You can’t predict everything, but you can predict the obvious & can prepare the data, trace the supporting documents & explain the anomalies before the DD process has started, thereby reducing time scales, reducing stress levels, impressing & supporting the purchaser’s confidence levels & improving the likelihood of success.

There is no such thing as a “light touch” due diligence. At some point in almost every transaction, the purchaser will tell the seller that they have instructed the professionals to carry out a “light touch” DD. But it never happens. Even if the purchaser actually does ask for a light touch, the professionals involved have to worry about their professional negligence insurance & will place pressure on the purchaser to allow them to carry out an extensive investigation & however well intentioned, most purchasers will follow the strong advice given by their advisors.

Choose your professional advisors carefully. This tip is important for both purchasers & sellers. Almost every professional adviser will claim that they are experienced in DD work, although many aren’t. Always ask questions & seek examples of previous work. Expect a firm to have specialist partners & if they don’t, wonder how much DD work they get involved in. Meet the other members of the team, as it is they that are doing most of the work & interfacing with the other parties in the transaction. As well as ensuring that the advisers are experienced in DD, ensure that they are not too big for the scale of this transaction – you will save money & improve the likelihood of a successful outcome.

Respond quickly, respond accurately & document everything. Not only does the DD process help the purchaser to maintain (or even improve) confidence that they are doing the right deal at the right price, the answers will have a direct impact on the wording of the Share Purchase Agreement & in particular, the warranties & indemnities. Wherever possible, you should also take notes & then confirm all conversations with a written record.

Manage the professionals. Again, this is equally important for both purchasers & sellers. If properly chosen, the professionals firms should be experts in their field, but are unlikely to be experts in your field. Equally, the professional people that are asking the questions & possibly preparing the responses are likely to be more junior & less experienced than you might expect. Many of the questions will reflect their lack of experience & lack of understanding, as will many of the answers. Even when the questions are “sensible” & the answers accurate, there is lots of opportunity for the professionals to misunderstand the responses or misinterpret the implications. Both purchasers & sellers need to keep a close eye on their respective advisers, to anticipate “ill advised” questions, clumsy answers & mistakes in interpretation. Check everything & don’t allow the often understandable mistakes to get in the way of the transaction.

Love the other side. Every sales process that involves an extended gap between agreement & completion suffers from a phenomenon called “buyer remorse.” Well known to both new car sales personnel & estate agents, the purchaser begins to regret the decision to buy & these feeling of remorse are exaggerated by the length of the time scale involved. With a company sale, the room for buyer remorse is exaggerated by the extended time scales, by the DD process & by any changing circumstances, whether it be the target, the purchaser,  the market or the economy that is changing. Whilst the purchaser is experiencing “buyer remorse”, the seller may well be experiencing “seller remorse”, a phenomenon that probably only occurs with sales of personal property, be it a house or a business. When you add in the particular invasive issues around DD exaggerated by the commitment to fulfil the DD process whilst continuing to manage a business, it is little wonder that seller remorse is such an important issue in every transaction. The solution is for both sides to meet often, empathise with the other’s issues & look to resolve problems before they become barriers.

Hang Tough. Most transactions experience problems & any issues are exaggerated when they are applied to family businesses where the emotional attachments are that much greater. By keeping the focus on the end result, a business that has been professionally prepared for sale & which is fully supported through DD will come through & realise real value for the vendor & for the purchaser

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Bob Drew is a Commercial FD with over 30 years’ experience in business. Having bought several businesses & sold a few, Bob has lived through a significant Exit when a large family business was sold to a private equity firm. The above Tips are borne of experience – they are not lifted from a text book.

Exit Planning Top Tips

1] Focus on your desires and objectives. For many entrepreneurs, this means balancing your wishes for yourself, for your family, for your employees, for your business and in many cases, for your customers and/or suppliers. This is a tough call and will probably take considerable time. Various people might need to be consulted, not least your professional advisers who may be able to help shape your thoughts and aspirations. The team at D5 Management have considerable experience with exit planning and will be able to test your aspirations and assist you in clarifying your thoughts.

2] Start Now! The earlier you start, the better placed you will be in achieving your aspirations. It’s a long process and the sooner you start the earlier you will be ready. Whether it’s a sale or a transfer within the family, every exit specialist will tell you that companies that plan early are more likely to complete and more likely to achieve a higher price and/or a more tax efficient solution. The D5 Management team are happy to engage early.

3] The Plan is critical. Why will the business grow? Why will it not decline when you leave? Why do you win in the market? In short the business needs a business plan that explains where it currently sits in the market, where it is going, how it is run, what threats it sees and what opportunities it will exploit…. A key part in establishing the value is a solid financial plan but this is underwritten by a quality business plan that explains the key assumptions. Too often there are numbers and tables with no plan and with no plan they are just numbers & tables… The D5 Management team are experienced in working on business plans and formulating business strategies. These sessions in themselves can add considerable value to a business.

4] Timing is everything. Economic performance and company profitability tend to follow cycles and the trick is to time a transaction so that you hit the top of the curve. But you are often not in control of events. The 2008 banking crash brought many a well-planned exit to a halt, either by damaging value or by the impact on funding. And even without a global economic crisis, the right buyer might appear at the wrong time or an unforeseen health issue might undermine the best laid of plans. The team at D5 Management appreciate the constraints on time and will be able to react at speed and are equally aware of the need, at times, to apply the brakes.

5] Clear out the skeletons. Every business over a few years old is likely to have issues that have not been attended to. Have you complied with all planning permissions and building regulations? What about the Health and Safety legislation? And are you up-to date with all of your tax compliance? Whatever the issue, it WILL surface during due diligence! The D5 Management team will help you identify these issues and will assist you in resolving problems and or introducing you to the appropriate experts.

6] View your business from the perspective of the other side. The negotiation euphoria is often followed by what the psychologists call “buyer remorse”. They worry that they have paid too much, about “black holes”, about future prospects, about losing staff and about post acquisition implementation? They just worry! But if you can see the world from their perspective, you can take steps to mitigate your purchasers concerns, before they become issues. The D5 Management team have been on both sides of the fence, have suffered the buyer remorse and are well qualified to predict the areas of concern.

7] Pay down debt. Your business is likely to be valued on a debt free basis and the price is then likely to be reduced by any outstanding debt. And your buyer’s advisers are likely to value debt far more aggressively than you. The D5 Management team can help you identify debt and if instructed early enough can help pay down or restructure debt before it becomes an issue within a valuation.

8] Generate competition. Easier said than done, but having multiple potential exit plans not only improves prices but also tends to shorten timescales between offer and completion. The D5 Management team have many strategic connections and will be able to assist in your search for multiple suitors.

9] Choose your advisors. You probably have long term relationships with advisers that have served you well. But an exit is a particular transaction which requires a level of expertise and experience that is outside the remit of many advisers, whatever they may claim. The team at D5 Management have “been there and done it” from where they have built a wide network of connections, all of which have significant experience within their particular areas of expertise.

10] Prepare a plan B. The stark truth is that most transactions fail. And the impact of failure can be devastating upon a business, if not planned for and managed. Clearly the D5 Management team would prefer to see a transaction through to completion but they will also help plan for failure and assist in managing that event if the situation arises.  

This was written by Bob Drew, a Commercial FD with over 30 years’ experience in business. Bob has lived through a significant Exit when his business was sold to a private equity firm. The above Tips are borne of experience they are not lifted from a text book.

Buying Groups – Improving Sales and Profits even in a recession?

When we started our buying group, our objective was to improve our buying terms by 2%. So we were surprised when our first tender improved purchase prices by 22% on a major product group and we achieved purchase price improvements between 10% and 20% across the other product groups. Subsequent purchase rounds improved buying terms further, improved credit terms and added significant marketing support. The returns were way ahead of what we ever expected.

My company was a founder member and we were careful in selecting colleagues who shared similar aspirations and similar business views. The founding group was made up of 4 companies, 3 of which ranked within the largest 6 companies within our industrial sector. As well as sharing the rewards we invested in a central warehouse facility which allowed us to source from overseas, in shared IT and a centralised purchasing function. As a group, we marketed together, exchanged skills and tendered for national contracts. 

Ten years after it’s formation, c15% of my company’s turnover was directly or indirectly linked to the buying group.

The buying group concept can probably trace its ancestral routes back to the earliest cooperative groups in the mid 18^th century. 

Although the Rochdale Society of Equitable Partners from 1844 is often cited as the earliest successful cooperative group, “The Cooperator” newspaper was established in 1828 and the earliest records go back to the mid 1700’s and the Fenwick Weavers Society of 1761. Whereas most of these early groups concentrated on selling and or social enterprise, the cooperative concept has developed across the world in various directions, including what is described as Retailers’ Cooperatives, where commercial organisations employ economies of scale to leverage purchasing opportunities and often pool marketing and other resources.  The Best Western hotel chain is a Retailers’ Cooperative whose members are independent hotel operators and who only dropped the cooperative description in order to avoid possible legal confusions within some US states.

Traditional buying groups operate in both horizontal and vertical markets.

Horizontal groups are not industry specific and focus upon generic services that are consumed across businesses in general. Horizontal groups tend to cover purchases of utilities, office supplies, building resources, packaging and generic professional services. At the small corporate level, many horizontal groups are independently owned, where the ownership is entirely separate from the membership, whereas in the large corporate arena ownership and membership are more likely to be aligned. According to research in the US, up to 20% of the Fortune 1000 use horizontal buying groups and reportedly receive improvements in excess of 10% on products that they source through these channels.

Vertical buying groups arise where business enterprises within the same industry come together to purchase raw materials, goods for resale and other goods and services within their industrial sector. Vertical buying groups are common within the grocery trade, electronics, hardware/builders merchants, plumbing supplies, leisure and hospitality, motor components, farming, healthcare and manufacturing. Some buying groups are independently owned whereas many are owned by their members. Some of these groups are enormous. “Today’s Group” claim to be the largest buying group of its kind in the UK with buying power exceeding £5bn although most UK buying groups are significantly smaller. “Today’s Group” are owned by their members.

As well as the normal commercial issues, buying groups have unique, but related, problems in terms of ownership, governance, finance and competition law.

In the early days of any group the founding members are more likely to concentrate on the practical issues and pay scant attention to the organisation. By definition, there is likely to be mutual empathy amongst the founding partners together with a shared vision. Shares/ownership will probably be allocated equally and decisions will probably be agreed by consensus, with a genuine incentive to compromise so that the project can be taken forward. Initial funding is likely to be shared equally with an agreed objective of getting the suppliers to pay the running costs by way of rebate or improved invoice prices. And little thought is likely to be given to competition law.

As the group grows, the opportunity for disagreement increases. Decision making tends to be by ownership rather than ability and there is often a tendency for decision makers to focus on the cost to their particular organisation, as opposed to the merit of the proposition. With equal funding, smaller members might be unable to fund ambitious projects. Whereas with funding linked to purchasing, larger members might reflect upon the differences in financial contribution, which might be further distorted by differences in product mix. And what happens when there is fundamental disagreement or a significant member leaves?

The legal implications are equally interesting.

In its broadest and simplest terms, it is illegal for businesses to do anything that distorts competition and which has a negative impact on the final consumer. In most cases, the purchasing process should be OK, but there is a need for caution when buying groups look at purchasing compliance rates within their membership. And additional caution is required when members start to cooperate on marketing, selling and contracting? Which, of course, is what many buying groups actually do. And extreme caution is required in terms of restrictions on membership or on member’s activities.

Buying group membership isn’t without its challenges. Members leave with possible implications upon the financial structure. New members join who may or may not share the perceived vision. Some members are fully engaged and fully supportive, whereas other members are less so. There is a tendency for secret agendas. But it works when there is a common goal and a well constituted membership agreement.

Our group produced an agreement from day one & I was responsible for drafting and negotiating a revised agreement when our largest member left, exposing operational and financial issues with the original contract. At that time, we chose to move away from a one member one vote system and to agree a voting system of my design and based upon financial contribution. It worked because we had a mature membership.

 
Buying groups are not for everybody, but where they are suitable, they can have a transformational impact. Having experienced the ups and downs of a £365m turnover buying group, we have the experience to advise and guide other buying groups along their journey to success.

Budget 2013

Budgets come & Budgets go and Budget 2013, which George Osborne described as a Budget “for an aspiration nation” passed with hardly a whisper. There are many that argue that the Chancellor had little room for manoeuvre, whereas there are others that argue that it was time, or even past time, for Plan B. Either way, the Budget is what it is & the main points are:

• An increase in capital spending plans by £3bllion a year from 2015-16, funded through reductions in current spending – so no plan B!

• A reduction in Departmental spending of £1.1billion in 2013-14 and £1.2 billion in 2014-5. The schools and health budgets to remain unchanged – again, no plan B!

• A limit in public sector pay awards to an average of up to 1 per cent in 2015-16 – whatever that will actually mean in practise!

• A reduction in the main rate of corporation tax to 20 per cent – the joint lowest level in the G20 - & really welcome to those large corporates that actually pay tax.

• An entitlement to a £2000 per year employment allowance towards employer NIC bills from April 2014 – a huge incentive for micro businesses, an incentive which is limited to businesses and charities, which means that it is not available to private employers of domestic staff. But why is it available to large corporates?

• A £5.4 billion package of financial support to tackle long-term problems in the housing market – although this particular announcement already appears to be in trouble, with memories of the pasty tax in the forefront of every bodies mind.

• £1.6 billion of funding for an industrial strategy to include the creation of an Aerospace Technology Institute.

• Meeting the commitment to make the first £10,000 of people’s income free from income tax a year ahead of schedule.

• Cancelling the beer duty escalator and reducing general beer duty by two per cent from 25 March 2013.

• Cancelling the fuel duty increase that was planned for 1 September 2013 – did he have any other choice & notably, he didn’t cancel the escalator?

• Introducing a Tax-free Childcare scheme so that working families can pay for childcare effectively tax-free – but why is it only available where there are two parents, both of whom work? & why is it available for parents with a combined income of £300,000 per annum.

• Introducing the single-tier State Pension and implementing the £72,000 cap on social care costs from April 2016 – where, of course, a cap isn’t what you or I might have understood by the word.

• An updated remit for the Monetary Policy Committee.

• A crack down on tax avoidance and evasion, which is intended to raise over £4.6 billion in new revenue over the next five years – and on face value not many people, will argue with that. But this crack down includes a couple of nasty surprises which might have effects that many people might well argue with.

The first nasty surprise relates to partnerships. Apparently there are avoidance schemes that use partnerships to avoid PAYE but equally, there are thousands of partnerships that are perfectly legitimate but whose very existence has been called into question until we see the full details of the proposals. Watch this space!
The second nasty surprise relates to Inheritance Tax. Again, apparently there are avoidance schemes where wealthy people attach loans to their estates, thus reducing the value of the estate, and use the proceeds of the loan to purchase assets that fall outside of the scope of Inheritance Tax. & where these schemes are clearly tax avoidance, they should be regulated. But what about the entrepreneur who uses his home as security for a loan that is used to invest in his trading business? Isn’t this legitimate? Isn’t this a standard requirement of many lenders of capital? Watch this space again, because this proposal needs careful consideration!

What does the expression “Part Time” mean to you?

First published November, 2012

"What does the expression “Part Time” mean to you? Working in an industry, it’s easy to assume that everybody understands the colloquialisms or expressions that are familiar to insiders & how many industries have been handicapped by an assumption that their customers understand the basics behind the name. Subscribers to this forum undoubtedly understand the meaning of the word BLOG, but to a whole generation the word is almost completely meaningless. So what would they make of a person who is described as a blogger?

So what does the expression “Part Time” mean to you? Maybe a mum returning to work? Or a person looking for an easy life, leading up to, or maybe post, retirement? Or maybe a person who works full time, but for a number of different people or organisations – a sort of full time, part timer, if you will! All descriptions are surely true.

So which is it, when you see a person described as a Part Time Finance Director? Well, it could be a mum returning to work, employed for 3 or 4 days a week for one organisation & it could also be someone at or around retirement, looking for an easy life. But these days, it is more likely to be a full time FD, working part time for a portfolio of clients. The advantages to the client are many and varied. They have access to a mature, experienced, commercial FD at a fraction of the cost of employing a full time person. Most clients will already have an established accounting function and are likely to already employ a bookkeeper and/or an accountant, possibly on a part time basis. But until they came across the concept of a portfolio part time FD, the client probably thought that they couldn’t afford their own Finance Director. And as most portfolio part time FD’s operate via their own limited company, the client is also absolved from the costs of employers NI, pensions, sick benefits, holiday leave, maternity/paternity leave and company cars.

And what is the difference between a part time FD and an interim FD? An interim tends to work full time for one client for a period of time – often to cover for maternity or to assist a client over a major project or increase in workflow. Assignments might be a number of weeks or a number of months, but after the assignment is completed, the interim FD moves on. A portfolio part time FD, on the other hand, will work for a number of clients at the same time and assignments will tend to last for many months, often years.

So what does a portfolio part time FD actually do? In simple terms, everything that a strategic full time FD does, but on a part time basis. Staff supervision and mentoring – often including HR, IT, purchasing, pricing and other admin functions. Risk and compliance. Cash flow management. Internal controls, KPI’s and reporting. Budgets and business plans. Relationship management with bankers, auditors, shareholders and other stakeholders. Raising finance. Mergers, acquisitions and other significant projects. Exit planning.

These days, many experienced part time FD’s are members of a group, whereby they can share skills, experiences and resources calling on colleagues to assist as the need arises. Maybe it’s an expert on Sage, a colleague with experience with buying groups, a franchise expert or maybe a colleague with experience within the angel investor market. And how many full time FD’s can say that!"

Christmas was the final straw for Comet

This blog was originally written in November 2012. 

"The sad news from Comet is a lesson for us all. Comet’s problems are well documented, as was its sale to the private equity company OpCapita for a reported £2. In reality, OpCapita was paid the sum of £50m by Comet’s then owners in order to persuade OpCapita to take the business off their hands. A rescue plan was enacted under the veteran retailer John Clare, the former chief executive of Dixons. Recent reports suggest that significant progress had been achieved with costs slashed and sales stabilised. 

So why the current demise? According to reports, suppliers to Comet have been unable to secure credit insurance and were therefore forcing Comet to pay in advance for their stock. And the final straw appears to have been the need for additional stock in order to cover the Christmas period.

And why is this, a lesson to us all? The fact is that there are a limited number of companies that are willing to offer credit insurance in the current uncertain times and, unsurprisingly, there is a tendency for these credit insurers to specialise in a particular market.  In other words, it would not be surprising to find that several of your suppliers are using the same company to insure your debt with them.

The problem arises when the total amount insured starts to rise. Your credit rating might be excellent, but may not be sufficient to persuade a credit insurer to take the whole risk on their books.  Interestingly, in my experience, when one insurer is insuring one company’s debt with lots of suppliers, it is often the small supplier that receives a refusal to insure. They are never told the real reason – that the customer is a good risk, but that the insurer is too heavily exposed – they are merely told that the risk isn’t covered. The supplier assumes that there is a problem with the customer, when it may actually mean that the supplier’s account is less important to the insurer than those other accounts that the insurer continues to cover. Either way, your debt with your supplier is no longer insured & your account might well be placed on stop.

So what can you do to mitigate this risk?

• Regularly review your credit rating with all the major rating agencies. You check out your customers, why not check your own. A client of mine discovered a disastrous credit rating following his best ever year. The credit rating agency was happy to investigate and discovered a data entry error, which they were pleased to correct. 

• Ask your suppliers who they use for credit insurance. If you are lucky, you will discover a diverse range. If you are unlucky, you can be put on alert of a potential problem. Always react to requests for additional information from credit reference agencies or credit insurers. Build a dialogue with the credit insurance providers. This might initially arise from a refusal to insure. Don’t ignore the problem, talk to the insurer. They will always welcome explanations and trading updates, particularly in the period between your accounting year end and the date your accounts are filed at Companies House.

• Talk to your supplier and let him know the results of your research. Again, a client of mine was refused insurance on an amount of a few thousand pounds, whilst the same insurer was willing to cover debts amounting to hundreds of thousands of pounds, but where the supplier they insured was a far bigger company. In this case, the supplier who had been refused cover was willing to continue to supply without cover.

But whatever you do, manage the risk."