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Christmas credit - only where it’s due

Christmas credit - only where it’s due

The Christmas and New Year period is a challenging time for businesses trying to balance taking advantage of festive season spending while minimising credit risk.

Christmas sales can become a cash flow nightmare early in the New Year when festive shoppers’ exuberance leads to an inability to pay come the New Year.

“The cost to business of customers slow paying or not paying should not be underestimated as businesses still have to pay staff and suppliers,” says Baycorp CEO Geoff Harper

Mr Harper says smart businesses are vigilant regarding their credit policies all year round but especially so at year’s end

“Increased Christmas sales also increase the risk of exposure to customers defaulting so it’s important for businesses to remain vigilant in adhering to their credit policies. They need to manage their credit risk.

“Fortunately, there are a few simple steps they can take to improve their financial risk management,” Mr Harper says.

Baycorp’s top tip for managing risk? Make sure you know your customers, especially those in whom you have a large investment. While all the suggestions may not always be possible, they are important elements in knowing your customer and managing your risk.

For commercial transactions:
• Know your customers - visit their premises, even if you just drive past. Does the business look well managed and active?
• Get a reference and ask about how they pay, a two minute phone call can save thousands.
• Ask other businesses who may supply to your customers Again this may be difficult especially in a competitive environment.
• Credit checks or company searches.
• Get a deposit.
• Personal guarantee, especially for large orders in which your business will have to invest time and materials.

The purpose is to ensure that in extending credit you are as informed as you possibly can be on your customers’ ability to meet their obligations to you.

Another important factor is you must not be afraid to ask for more detail and importantly for payment. Having gone through this process and you still have no success, call in the experts and call them in early.

Using a collection agency such as Baycorp to recovery outstanding debt enables you to:
1. Focus at what your business is best at – making a product or supplying services.
2. Focus your customer on the issue of non- or late-payment.
3. Apply specialist skills to the problem.
4. Take away the emotional context of the situation – the debt collector’s sole purpose is to recover the funds you are owed.
5. Get back to running your business.

Mr Harper says while businesses often want to give their customers every chance to pay, undue delay can easily turn a sale into a loss.”It’s our experience that for every six months a debt is outstanding the chances of it being paid reduce by up to 50 percent,” he says.

Credit checks
Mr Harper says it’s essential to perform as many credit checks as possible; ideally in every situation where a business is planning to issue credit whether it be to an individual or a company. “It’s the best way to collect and store information about your customers and enables you to accurately gauge who you are dealing with.” Time and effort spent at the beginning of a deal is time well spent.

Obtaining a personal guarantee or a deposit are other tools to reduce credit risk. Obtaining a personal guarantee where credit is to be extended to a company is a must. “Our experience is that Creditors have learned to take advantage of these tools,” Mr Harper says.

Terms of Trade
Sound terms of trade can significantly reduce costs when collecting debts, Mr Harper says. Effective terms of trade provide benefits in the collection process – such as enabling interest to be charged on overdue balances and passing on reasonable costs incurred in collecting a debt to the debtor, including costs incurred through legal proceedings. Key to passing on liability to a customer however is that they must be made aware of the terms of trade prior to when the services are provided

Credit policy
Make sure the credit policy sets the rules. It should define procedures, be reviewed regularly to meet changing conditions and most of all, be firmly adhered to. However, different strategies for different debts should be applied; taking stronger action on higher value debts and customers with a short history. All exceptions should be discussed and well documented.

Collection agency
Often businesses are reluctant to engage a collection agency for fear of souring a customer relationship. Debt collection done with integrity, a firm approach and balanced with empathy ensures both remain intact.

Using a collection agency removes the emotional factor which may inhibit a business from effectively collecting their debt. Mr Harper says the earlier a debt is notified the more likely a successful outcome. “Ensure you have all your documentation and discuss with your collection agent how you would like the account to be handled” he advises.

Further information is available at


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