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Risk monitoring vital

CREDIT mangers have been advised to constantly monitor their exposure to customers so they can act quickly if problems arise.

Melsom Robson partner George Lopez told AICM’s State conference that many credit managers are “too reactionary rather than being right on top of it”.

“Consistent monitoring and early intervention are vital components to minimise risk of exposure,” he said.

“Procedures to ensure that credit limits are adhered to, terms of repayment are met by the due date, follow-up procedures are promptly instigated, all help to ensure that exposure is kept to a minimum.

“Strict debt collection procedures followed consistently will help to ensure that the defences of good faith and [in the case of bankruptcy] ordinary course of business are available.

“In addition, the earlier and more frequently debt is collected, the less likelihood that the debtor will become bankrupt or go into liquidation within six months.”

Mr Lopez, who is also national chairman of CPA Australia’s Centre of Excellence in Insolvency, said it was important for businesses to put systems in place.

He added that companies had to make policy decisions to balance the amount they spent on credit management with the materiality of their debts.

Mr Lopez recommended that personal guarantees should, wherever possible, be obtained from directors before granting credit to a new client.

While many organisations include personal guarantees with their credit application forms, businesses often fail to insist on completion of the paperwork or fail to check for correct completion.

Another area of concern raised by Mr Lopez was the tactics used by some liquidators to recover alleged preference payments.

“Some practitioners [very few, we hope] adopt the reprehensible practice of simply sending letters of demand to every creditor who has received payment within the period,” he said.

“While they may sometimes experience success in obtaining funds, it is generally because of the ignorance of the creditors concerned.

“When creditors receive such demands, as a matter of procedure, they should request the author of the letter prove the elements first.”

 

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