This article was first published in the February 2012 Ireland edition of Accounting and Business magazine.
01 Has there been an evolution in the sophistication of credit control in the last few years
Without a doubt, recognition of the importance of credit control among Irish businesses has improved greatly. In good times, credit control is important; in bad times, it is critical. All of a business’ working capital and finance needs, and its ability to pay bills, are predicated on the predictability of cashflow. Companies are seeing the link more clearly between effective credit control and confidence in their inflows, which, in turn, may mean they need less headroom in their banking facilities and have less ‘urgent events’ to tackle.
02 Do you see any recurring mistakes being made?
If a debtor only has a limited amount of money to pay, they will pay the person who is making the most noise. A company that is sloppy in its credit control is, effectively, allowing someone else to be paid ahead of them. In a limited pool of cash, you want to make sure you get your fair share. Credit control is notabout ringing up and being abusive. Credit controllers are professionals who deal with their customers on the basis of documentation and systems.
03 Tell us about Bank of Ireland Finance?
Bank of Ireland Finance is, essentially, three businesses. It’s an invoice discounting/ working capital business and it’s a leasing business with two main focuses – one, a provider of asset finance solutions to the business and corporate base and, two, a motor- franchise business, providing stock to retailers and consumer finance through HP. Our franchise relationships cover approximately 50% of car sales in Ireland.
04 People are generally cynical about banks at the moment. How does that impact on business?
I would say that actions speak louder than words and our business reps are out there, pounding the pavements, looking to grow our business. Of course, opinions vary and you can only change them one person at a time, but when you look at how we are growing our book, I think that indicates that we really are open for business.
05 For people looking for a new line of credit, what do you offer?
Firstly, it’s important to recognise that the demand for credit is well down at both an individual and corporate level. Where there is a demand for working capital, it’s built on an expectation of growth. It’s important that our business representatives understand a business in its entirety and, particularly, what is driving this working capital requirement. If you understand those dynamics, you have a real shot at putting a financing package in place that will last.
06 Do companies turn to invoice discounting too late in the day?
Invoice discounting providers on the market, including ourselves, have been saying for along time that we are not the lender of last resort. This is not factoring: your banking relationship is between you and your bank, and no one else. Our customer base, and that of our competitors, includes some of Ireland’s largest corporations as clients. Our largest single facility is for a customer with a turnover of €1bn annually. A business of that sophistication has many different options and, clearly, sees this as the right one.
07 How is invoice discounting growing?
The market in the period up to June 2011 wasup 13% year-on-year. Generally, across the industry, people draw down about half of what’s available and, at any one time, about €2.7bn would be available. At Bank of Ireland, we discounted sales of €9.6bn to September of last year. Of that, about €3.3bn involved exports, to over 40 different countries. For 2012, we expect to grow by 20%, through a combination of existing and new customers.
08 Have bad debts increased over this time?
Our bad debts are higher than they would have been in the 2007/08 period but they areat acceptable levels. No one likes bad debts and they could always be lower, but they are at levels we are comfortable with.
09 What role do you see for financial advisers as companies engage with you?
Good advisers can bring the experience they have had with other businesses or other banks to the table. As an external set of eyes, they provide a valuable perspective and balance; they can ensure the appropriate levels of flexibility and stress testing are applied. With the help of a financial adviser, a business can come to a bankunderstanding the difference between a budget and a projection, between what they want and what’s likely to happen. They can make sure that the model of projections is flexed so that it’s covered for turnover increases or falls.
Either can have a huge effect on the facilities you ultimately get. It’s important that all this is interrogated, in advance, before the customer is put through their paces by a bank.
10 Do you quantify your refusal rate? What are the learnings for companies refused?
We analyse this monthly, firstly, because we have reporting obligationsbut, secondly, when you run your business, you always want to know which companies you are refusing and why. In a job interview, if you don’t get the position, you ask for feedback. In invoice discounting, if we feel this is not a deal we want to get into, we will explain why, whether it’s a systems issue, a debtor-quality issue, or to do with the company. It should all be interesting feedback to a company because, if we have doubts or concerns, they are likely to want to address them for their own benefit. If there is a way to fix them, we will sit down and talk about it and, when they are fixed, we will look at the opportunity again.