Over the Christmas period it was announced that City Link Ltd had been placed in Administration. On the radio I heard a distressed sub contractor saying that he was owed a considerable sum of money that may lead to the demise of his business.
What concerned me was that a supplier had put themselves in position when there was information available to make a decision regarding the level of credit that should have been granted to City Link Ltd.
What concerned me was that a supplier had put themselves in position when there was information available to make a decision regarding the level of credit that should have been granted to City Link Ltd.
Set a credit limit that reflects the risk
Let’s look at the facts. This company had accumulated losses in excess of £175million since 2009. It had accumulated CCJs of £32,019 in recent years. A leading credit rating agency had rated the company as ‘high risk’ since July 2014. All this information is in the public domain and available at a relatively low cost to anyone supplying this company. If the sub contractor in question had carried out some basic credit checks he certainly would not have advanced the level of credit that he appears to have granted to City Link. Of course he may have suffered a fall in turnover but he certainly would not be facing the failure of his business.
As at 29th December 2013 there were trade creditors of £20million and depending on trade in 2014 it is likely that that figure could increase the result being that suppliers owed £millions will not be paid.
The lesson to be learnt is to ensure you have up to date information on your customers and that you set a credit limit that reflects the risk. People in business are now used to be given a credit limit by their suppliers, however many SMEs are often reluctant to impose credit limits on their customers for fear of upsetting them. If the granting and limiting of credit limits is presented to customers in a sensitive way you should have no problems.
In summary know your customers and manage your credit exposures otherwise you could end like the City Link subcontractor.
As at 29th December 2013 there were trade creditors of £20million and depending on trade in 2014 it is likely that that figure could increase the result being that suppliers owed £millions will not be paid.
The lesson to be learnt is to ensure you have up to date information on your customers and that you set a credit limit that reflects the risk. People in business are now used to be given a credit limit by their suppliers, however many SMEs are often reluctant to impose credit limits on their customers for fear of upsetting them. If the granting and limiting of credit limits is presented to customers in a sensitive way you should have no problems.
In summary know your customers and manage your credit exposures otherwise you could end like the City Link subcontractor.
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