The true impact of a significant bad debt can range from damaging a business’s profitability to threatening the survival of the whole company.
Once a business discovers a bad debt it is already fighting a rear guard battle, and the role of the credit controller is crucial in helping to manage the risks.
Businesses should be insuring themselves against the impact of bad debt by being proactive and using specialist legal and credit control advisers at an early stage. It’s often best to go out and collect the debt, but many companies leave it too late to begin to claw that money back and when the creditor is already in financial distress, it could be the wrong approach.
The role of the credit controller is an interesting one and there is a new school of the ‘red flag man’. From a sole in-house individual to a larger business function, possibly outsourced, the credit control function is key.
It’s important that credit controllers talk to their counterparts and keep up to date with the best practice and latest market intelligence. Business leaders should also be encouraging credit controllers to keep up with the latest industry developments and trends, for their own and for their business’s sake.
A good credit controller is one which monitors the marketplace properly and delivers information to the management team effectively. They shouldn’t just be delivering a set of data, but providing it with insightful commentary on the marketplace, including the pros and cons of recovering payments from particular debtors and flagging the real risks of company exposure.
They will need to advise management teams on how to manage their creditors and wave a red flag where necessary. Many people think ‘cash is cash’, but businesses will need to conserve their key creditors for example, protecting a creditor in production may result in the ongoing continuity of the business.
Owners seeking to recover a bad debt need to be taking appropriate advice from advisers who understand the marketplace and use market intelligence to choose the right course of action. Acute numbers of companies operating within the oil and gas sector have been facing insolvency because of higher exposure levels due to market conditions and it’s this type of know-how which will mean the difference between a bad debt and a real threat to their business.
Credit controllers will also be able to advise businesses on who they should or should not contract with. We’ve seen a number of larger insolvencies in the region and big business does not always mean safe business. Credit profiling is not set in stone and a company’s position and market conditions change continually.
All businesses need good advisers who can understand and interpret what the market intelligence is telling them and raise the red flag when necessary.
