Financial risks in all directions
By Andy White, CEO Towergate Risk Solutions Sevenoaks
The speed of the credit crunch has put many businesses at risk.
With banks holding onto their cash, it’s never been more important
for businesses to take a tighter grip on four key areas of risk:
credit management, redundancy procedures, fraud and invoice
payment.
Last year an estimated 17,000 corporate insolvencies are thought
to have taken place and with giants like Woolworths hitting the
deck, in 2009 the number is probably set to soar beyond this.
While robust financial systems are an obvious aspect of risk
management, your organisation could face an increasing insolvency
risk in its supply chain – both on key suppliers and on
customers.
A Towergate manufacturing client recently experienced the
unexpected insolvency of one of its top five customers. We had
credit insurance cover in place and got £400,000 of the £1,000,000
claim paid within three weeks, with the remainder settled within 45
days. The cash flow boost was vital for the survival of the
business.
Invoice delays
Large companies are exploiting small businesses by delaying
invoice payments and imposing new terms and settlement fees on
owners, according to the Federation of Small Businesses (FSB).
Under the Late Payment of Commercial Debts (Interest) Act 1998
you can charge interest at 8% above the existing base rate on debts
but many small businesses fear losing valuable contracts if they
do.
Towergate Risk Solutions Sevenoaks offers credit insurance which
includes credit management advice.
There are four steps which could keep the cash flowing at a time
when suppliers demand fast payments and customers seek to stretch
out the payment process:
- Always get a signed contract with your customers.
- Get credit checks on customers at regular intervals.
- Send regular statements to customers to remind them what is
owed.
- Chase up invoices by telephone and cultivate a friendly contact
within the client’s accounts department.
Hands in the till
Staff ‘dipping into the till’ is an underestimated cost of
business and one that can be avoided by vigilance, tighter controls
and staff co-operation. Apparently, employers often fail to meet
their employees’ expectations on fraud, according to a Europe-wide
survey.
Many employees who suspect fraudulent activity is taking place
are reluctant to report it for fear of victimisation or
retribution.
Of course, employee fraud or theft is not the only source –
external cyber crime is also an important factor. As a first
defence, though, employers should look closer at their internal
systems and get their employees on side.
Checking the references of new staff is vital, but often
temporary agency staff are taken on without any checks being made –
the organisation depends on the employment agency to make
checks.
Making your own employees aware of the need to protect the firm
from insider fraud is an important step. Statistics show that 50%
of frauds are discovered following a tip-off from an employee.
Redundancy procedures
Redundancies are likely to be a fact of life in 2009. Make sure
your procedures are watertight. No win, no fee ambulance chasers
could encourage dismissed staff to take you to a tribunal to
squeeze more compensation out of your firm because of mistakes in
your procedures.
Towergate Risk Solutions Sevenoaks offers Employment Practice
Liability Protection policies which include audits of your policies
and procedures.
Fore when all else fails
A myth that persists with directors is that the compulsory
employer liability insurance covers them from personal prosecution
or civil action. In fact when an accident or other disaster strikes
it will only cover the costs of a civil action for damages against
the firm. If criminal proceedings arise or action for breach of a
director’s duty of care or statutory regulations, the director
stands on his own feet.
Increasingly, regulation and accident at work court decisions
mean that directors are at risk from:
- Disqualification as a director
- Criminal prosecution
- Personal bankruptcy
- Loss of job and reputation
- Family trauma and financial hardship
Directors’ and Officers’ protection, however, gives the
essential personal cover in the event of legal action against
individuals. While fines or penalties cannot be insured against,
the costs of lawyers’ fees can.
With rough weather ahead, greater vigilance in all five areas
describe above could make the difference between success and
failure in 2009.
For further information on managing risks to your business
please contact Peter LeBreton on 01732
228 774.