1 For internal communication only

Andrew Barbaro“The upturn in the economy – establishing who the winners and losers will be”

6th October 2015

1 May 20232

Who remembers the “credit crunch”?

1 May 20233

Economic downturn• Businesses had problems if• Isn’t easily scalable / massive fixed monthly

costs• Has poor cash reserves / liquidity

• Heavily dependant on invoice discounting• Has an inexperienced management team

“keep going! it’ll be fine!”

(6 months later) “keep going! it’ll be fine!”

• Poor relationship with bankAnd/or• Their bankers have problems of their own

and behaved accordingly

1 May 20234

Economic downturn•Businesses at risk:

• Fail to recognise the depth and breadth of the recession

• Fail to “cut their cloth” accordingly

• Continue to chase turnover with little or no profit for the business.

• Under capitalised businesses run as “lifestyle companies”

• Companies barely able to repay bank interest/finance charges “Zombie companies”

1 May 20235

Comprehensive approach• Within the organisation:

• Business external sales force

• Accounts Receivables: slow/stop/legal

• Visibility of customer exposure/behaviour at group level.

• External to organisation:• Credit Circles• Other Credit Managers• Construction industry

discussion groups

• Contact With The Customer:• Recent customer

management accounts

• Credit Visit

• Agency Data:• Credit Agency Reports• Shared payment

performance data - monthly

1 May 20236

Example of Payment Performance

1 May 20237

Segmentation is key!

1 May 20238

Segmentation is key!• Understanding who poses risk• Which customers can survive long term• Obtain the latest information possible• Result – three classifications

• Red• Highest risk – could be a bad debt in less than 6 to 12

months• Amber

• Overtrading? No obvious signs of failure but a risk.• Keep checking in

• Green• Less management time spent• Sales opportunity?

1 May 20239

Lower risk business do this:• Cut deeper, faster • Review their strategy –

challenge the current model and redefine their customer offering

• Stop loss making activities• Preserve cash, actively

recover their receivables.• Turn sales into cash quickly• Rebuild balance sheet -

retaining profit in their business

1 May 202310

Six years on…

1 May 202311

Six years on..• Economic improvement from a flat economy• Market place has right-sized and corrected

itself• Weakest have failed

• However many weak companies continue on• Debt laden• Barely able to service debts• Chasing turnover to maintain ID cashflow• Hoping for the best

• Interest rates – flat at 0.5% - for how long?

1 May 202312

So who is at risk now?Some “features” of risk companies

• Heavy dependency on ID facilities

• All assets are charged by banks

• Flat or declining performance

• Creative accountancy

1 May 202313

What to watch for• More!• Excessive dividends/Director payments at expense of

company• Directors doing well• But the company isn’t.

• Inability to pay other suppliers when they fall due• Rumours of poor payment, usually to commodity

suppliers• Ownership changes of company assets: “ring fencing”• Properties now owned by directors personally• Or by a separate company• Departure of “high flying” key staff

• Including sales directors, managing directors and finance directors (why?)

• Low stock levels, frequent “no stock” issues• Gaps in stocks – Are suppliers placing the company on

stop?

1 May 202314

What to watch for• Company losing money, but the directors steadfastly follow

their current plan.• Language in accounts:

• “challenging”, “depressed market”, “continued pressure”

• “Challenging year.. We hope for an upturn in the economy next year..”

• “We anticipate an upturn in business with the Green Deal”

• “The continuation of activities is dependant upon…”

• ‘Business advisor’, ‘Turnaround consultant’ or ‘external consultant’ is present.

• Director receives a Queens award for “services to industry”

1 May 202315

What to watch for• Some poor performing companies continue to trade –

• it’s not always a sign of the banks confidence in them.

• The banks may be an unwilling passenger!• The banks may be confident in their security

• Loss of lender/bank support is usually followed by company failure

• The company directors are always the reason for a company failure

• If something in a customer’s behaviour concerns you – ask questions!

1 May 202316

It’s the jockey – not the horse!

1 May 202317

The visit• Attend alone or with sales?

• How you turn up to meetings

• Meeting the right people

• In the right circumstances

• Eyeball the empire

1 May 202318

THANK YOU