Friday, April 5, 2013
Stagnant salaries in Mexico, fueled by strong population growth, will give Latin America's second-biggest economy an edge over China in the U.S. market, Bank of America Merrill Lynch economist Carlos Capistran said on Thursday.
Average hourly wages are now 19.6 percent lower in Mexico than China whereas in 2003 they were 188 percent more costly, according to the Bank of America study.
Wednesday, March 28, 2012
The approach these ladies are taking is quite similar to those conjured by Lysistrata in the ancient play where she gathers a group of women from the various Greek city-states and launches an effective campaign to end the Peloponnesian War by withholding sex from the men. Soon after the commencement of the campaign some of the elder women take control of the Acropolis which housed the state treasury thus limiting the ability of the men fighting the war to fund it.
While the Spanish Ladies intentions are admirable I am not sure how successful they might be. If the amorous ways of the bankers in Spain are to be fulfilled, then I suppose they will have to begin lending again to small businesses and families to continue enjoying their asuntos de amor.
If you have not read the Lysistrata, I highly recommend it. Very funny and insightful as to the ways in which women can often times be the better leaders in the affairs of man.
Wednesday, March 7, 2012
More than 4.5 million companies use QuickBooks, making it by far the most widely used accounting system in the world. However, many users frequently overlook or underutilize the product’s strongest features. The following is a list of 12 QuickBooks intermediate and advanced features that you should be using.
1. Custom Data Fields
Custom fields is one of the most powerful features in accounting software. QuickBooks Premier provides 20 generic custom data fields, and QuickBooks Enterprise provides more than 50 content-specific custom data fields. Using these data fields one can overcome many shortcomings in an accounting system. For example, a boat marina might use custom fields to track the name of the customer’s boat and slip number and to create a data field indicating whether the customer subscribes to the monthly cranking service (see screenshot below).
Further, QuickBooks allows users to filter reports using those custom data fields. For example, the boat marina could filter a list of customers to display only those who subscribe to the monthly cranking service, thereby producing a list of boats that need cranking each month. To use the tool, go to the Customer Center, select a Customer, click the Edit Customer button, then under the Additional Information tab, click Define Fields.
Custom Data tip. Information entered into custom data fields can also be included in financial reports, on invoices and in all QuickBooks documents.
2. Memorize Transactions
For every company, a significant number of transactions recur regularly, and QuickBooks accommodates this by enabling you to memorize recurring transactions. For example, suppose a company makes the same monthly rent payment, bills clients for recurring monthly services or records the same monthly depreciation entries. In these cases, QuickBooks can memorize the transactions and automatically enter them for you at regularly scheduled intervals. This feature can help save time, reduce mistakes and increase accuracy. You also can use this feature to memorize complex journal-entry templates, such as detailed allocations, and enter the actual amounts later. To access the tool, type Ctrl + M.
Memorize Transaction tip. Memorize Transaction will generate electronic payments or paper checks but it does not automatically send or print them. Once a check is created in QuickBooks, you can send or print the check using the File menu’s Send Documents or Print Documents menu options.
3. Process Multiple Reports
Often, bookkeepers who do a good job of keeping the books fail to consistently produce and distribute the necessary financial reports each day, week or month for company personnel to use in managing the business. In many cases, the process of preparing and printing dozens of reports is too time-consuming. QuickBooks provides a solution called Process Multiple Reports, which enables users to group together dozens of reports (using the Memorize function) and print them all in a single step, as shown below. To access the tool, go to the Reports menu, Process Multiple Reports.
Multiple Reports tips. When memorizing each report, include the recipient’s name in the report title to make distribution a little easier. In addition, re-sorting the reports in the Memorize Report window will ensure that the reports print in collated order.
4. Prevent Prior-Period Changes
A common issue with QuickBooks is how easily users can (intentionally or unintentionally) enter or edit transactions in prior periods. To prevent unauthorized prior-period entries or changes, set up a unique username and password for each user and set each user’s preferences to prohibit him or her from bypassing the closing date. Thereafter, by establishing a password-protected closing date and moving it forward each month as review and adjustments are completed, you can lock down the prior-period data as the year progresses, as shown in the screenshot at the bottom of the previous page. To access the tool, go to the Company menu, Set Closing Date.
5. Batch Invoicing
QuickBooks versions 2011 and higher enable users to create a batch of invoices in a single process. For example, a company that needs to invoice 500 customers each month for a $20 Webhosting fee can generate all 500 invoices in one step. The batch invoice feature also allows users to search for customers according to custom data fields and then invoice the resulting group. For example, this would empower the boat marina’s bookkeeper (as mentioned above) to invoice in a single step each customer who subscribes to the monthly cranking service. To access the tool, go to the Customers menu, and select Create Batch Invoices (see screenshot atop the next column).
6. Remote Access
QuickBooks Remote Access is a Web-based service (go to tinyurl.com/m7ljuf) that allows users to securely log in to their QuickBooks systems. Remote Access grants them entry only to their QuickBooks application and data and prevents them from viewing other data, such as Word, Excel and email files, on their computer. The service takes only a few minutes to set up and, thereafter, they can log in to their QuickBooks to train users, be trained by outsiders, review their books and, if appropriate, enter corrections and adjustments. Remote access is priced starting at $3.95 per month.
7. Attach Documents
The Attach Documents feature enables you to attach electronic documents throughout QuickBooks to achieve a paperless environment. As documents are processed, you can save them locally on your computer network or to a cloud-based storage facility accessible by all users, even those in remote locations. Some of the advantages to maintaining a paperless accounting system are:
a. Electronic documents can be available to all users, even remote users;
b. You can locate electronic documents quickly via indexed searching;
c. Electronic documents are easier to include when preparing reports or email messages, reducing the costs associated with making copies and sending paper documents;
d. Electronic documents can be easily backed up off-site for better data protection; and
e. Electronic documents reduce costs related to paper documents such as filing cabinets, file rooms and archiving efforts.
There used to be a charge associated with this feature, but the new QuickBooks 2012 Pro offers Attach Documents with free local storage, as Intuit is phasing out the cloud option. To use the tool, click the Attach button with the paper clip icon in any document or template. This option is grayed out until setup is completed.
8. Imported Credit Card Transactions
Typing a lengthy credit card statement into your accounting system is time-consuming and difficult to accomplish without making transposition or keypunching errors. By contrast, in most cases, credit card transaction data can be imported directly into QuickBooks in just a few seconds, and QuickBooks’ built-in logic can automatically match the expenditures with the appropriate vendor and account number for more efficient processing. This feature is included for free. To access, go to the Banking menu, Enter Credit Card Charges and click the Download Credit Card Charges option at the top of the page. Your specific setup and monthly procedures will vary depending on the credit card company you use.
9. Stratifying Reports
QuickBooks provides a Columns tool that can stratify financial reports by numerous column configurations. This functionality is valuable for analyzing and scrutinizing a company’s financials. For example, a single column profit-and-loss statement can be quickly transformed into an 81-column profit-and-loss statement—with a separate column for each of 80 customers and a total column at the end. Likewise, that same report could be restratified to display a column for each inventory item, thereby reporting the profit (or loss) for each item (or group of items). Other options include stratifying columns by month, quarter, year, departments, sales representatives and more (see screenshot below). Surprisingly, many popular, high-end accounting systems and enterprise resource planning applications fail to provide this type of beneficial reporting. To access the Columns tool in any financial report, click on the Columns dropdown menu above the report.
10. Using Account Numbers
As an option, QuickBooks allows you to display seven-digit account numbers in addition to 31-digit alphanumeric account names. The benefits are faster data entry (using a 10 key) and the ability to control the sort order of accounts displayed in financial reports. For example, you could use this feature to dictate that the accumulated depreciation account appears below property and equipment, not above. To use the tool, go to the Edit menu, Preferences, Accounting, Company Preferences tab, and check the Use account numbers box, as shown below.
However, activating this option also includes account numbers in the financial statements and reports, which is not always desirable. To suppress account numbers, edit each account and add an account description, then set the Reports-Show Accounts by preference to Description Only. After that, only the account descriptions, instead of account numbers and names, will appear on all financial statements.
Reporting tip. The “Description Only” preference setting can be used to display customized row descriptions on financial statements; for example, you may prefer “Trade Receivables” instead of “Accounts Receivable.”
11. Fixed Asset Manager
Every company has assets, and the QuickBooks Fixed Asset Manager (included in the Accountant and Enterprise editions) can track those assets according to six methods (federal, state, book, adjusted current earnings, alternative minimum tax and other). The system incorporates many tax methods, such as the accelerated cost recovery system, the modified accelerated cost recovery system, and the IRC Sec. 168(f)(1) and Sec. 179 depreciation methods, among others. Upon asset dispositions, the system can calculate the appropriate gain or loss on sales, as well as the appropriate amounts of depreciation recapture. Although fixed-asset data can be integrated with QuickBooks, many companies tend to use the Fixed Asset Manager as a stand-alone product—which I recommend because the effort setting up integration probably takes more time than it saves during the year—and enter manual depreciation entries each month in QuickBooks. To access the Fixed Asset Manager, go to the Accountant menu, Manage Fixed Assets.
12. Intuit Data Protect
New as of QuickBooks 2011, Intuit’s Data Protect service automatically backs up your QuickBooks data (or all of your computer files, up to 100 gigabytes) daily to a Web-based storage location. The Data Protect service differs from the older QuickBooks Online Backup service in that the backup procedure runs even when your data file is open, and each daily backup is saved for 45 days. To download Intuit Data Protect, go to tinyurl.com/4yy9z9y. Once installed, choose File, Backup. Note: Prices range from $4.95 to $9.95 per month.
Wednesday, February 22, 2012
Dunn & Bradstreet has a few ideas about how to keep this area of your finanical picture healthy:
Cash management is ultimately about cash flow -- and very few small businesses are awash in cash. Even successful, growing companies are vulnerable to cash flow problems because they tend to add employees and inventory rapidly. This may quickly deplete the company coffers and lead to cash shortages.
Because having cash at the right time is so important, entrepreneurs must pay close attention to cash management.
Here are some tips for saving money and managing cash flow:
Make financial projections. Forecast both expenses and anticipated revenues for at least the coming year. This will help you predict when you're likely to have cash and when you're likely to need it. You should also maintain a cash reserve if possible.
Create contingency plans. Have several budget projections, including best case and worst case scenarios, and think about how you might respond. In the event sales don't take off as expected or there's some unforeseen problem, you'll be better prepared.
Keep a lid on spending. One of the most common problems with new businesses is the owners' tendency to spend freely. There's no need to have lavish offices or expensive furniture. Remember, you're in this for the long haul: You should try to get as much value as possible out of every transaction, whether you're leasing office space or stocking the company kitchen.
Keep inventory low. Don't stock inventory based on your fantasy of what you think you'll be selling in six months. Instead, stock only what you know you can sell in the short term.
Lease, don't buy. Another good way to conserve cash is to lease equipment instead of buying it. Although leasing can be more expensive in the long run, it helps you avoid laying out a lot of capital all at once for things like office furniture, computers and copiers.
Delay hiring employees. Try to improve the productivity of current employees (without burning them out), use independent contractors and consider outsourcing certain nonessential functions. Employees are expensive, so you should put off adding permanent hires as long as you can -- or at least until you're earning the revenue to support them.
Go without a salary. Some experts recommend stockpiling a year's worth of living expenses before going into business. Admittedly, this may be difficult, but you should at least avoid paying yourself an excessive salary. Too many entrepreneurs waste cash by paying themselves big salaries without the revenues to justify them.
Speed up customer payments. Try to get customers to pay on time or early, if possible. Offer incentives like discounts or late fees, and adopt more effective collection techniques for deadbeat customers.
Don't be wasteful. Recycle and reuse what you can -- for example, boxes, computer discs and file folders. The savings may not be large on any given item, but they can add up over time.
Using Income Statement Ratio Analysis to Stay on Track
Savvy entrepreneurs track how their businesses are progressing by doing ratio analysis each month. Examining several key ratios on your income statement will reveal whether your business is in good shape or headed for a cash crunch.
Using your income statement data to figure your accounts receivable, accounts payable, and inventory ratios will tell you how fast you are having to pay suppliers, getting paid by customers, and moving products off the shelves. (If you sell services instead of goods, the inventory calculation won't apply.)
Accounts Receivable Turnover
To figure accounts receivable turnover, look at a year's worth of past monthly statements and add up the daily amount of accounts receivables (unpaid customer bills). Divide by 365 to get your average daily receivables. Next add up the total amount of sales you made that year on credit to get your total annual credit sales. Now you can figure your accounts receivable turnover rate:
Accounts receivable turnover = average daily receivables x 365 / total annual credit sales
For example, if your daily average is $25,000 and the total you sold on credit for the year was $200,000, you're taking 45.6 days to collect on an average bill. If your terms are net 30 days, slow payers are choking off your cash flow.
Accounts Payable Turnover
Next compare this figure with your accounts payable turnover rate: how quickly you pay suppliers. Ideally this figure is larger than the accounts receivable turnover rate.
To figure your payables turnover ratio, first add up your payables for each day of a year and divide by 365 to get your average daily payables. Then add up how much you bought on credit for the year to get your total credit purchases. Now you're ready to do the accounts payable turnover ratio formula:
Accounts payable turnover = average daily payables x 365 / total annual credit purchases
If your average payables are $8,000 and you purchase $98,000 in goods on credit in a year, your ratio is 29.8 days. This means you pay suppliers in just less than 30 days. Since customers aren't paying you for more than 45 days, you likely have a cash-flow problem because you need to cover the gap between when you pay for the item and when you collect the customer's payment.
The next key ratio is inventory turns. How long do products sit on your shelves before they're sold? Here's the formula:
Inventory turns = average daily inventory x 365 / total annual cost of goods sold
If you have $45,000 of average daily inventory on hand and your total annual cost of goods is $120,000, it's taking an average of 136.8 days for an item to be sold.
Now we have the story of your business: You buy an item, and on day 29 you pay for it. Then on day 137, a customer buys it on credit, taking 45 more days to pay for it. That means from the day you buy an item, it takes 182 days for you to get paid, leaving a 153-day gap during which your business has to finance that purchase. That's an important fact to know when you're figuring whether you are really selling goods at a profit because you need to include the finance cost of any borrowing needed to stay afloat.
Tracking these three ratios each month will show whether your business metrics are improving or deteriorating. Other ratios you can calculate to track important trends in your business include gross margin and net profit.
To make the most of ratio analysis, obtain industry average ratios or ideal targets to compare with your own ratios. Your industry association may have some helpful data, or tap business networking groups to find chatty colleagues with similar businesses.
Monday, October 31, 2011
Friday, September 9, 2011
With the credit markets still artificially tight due to the Fed paying on reserves and Washington DC too captured to prosecute or hold accountable the greedy who caused the mess we are in, alternative sources of business funding are coming to the fore and are being accepted and promoted as valuable methods of financing in a very challenging environment.
It is often a concern of business owners: What will my customers think if they were to find out I factor my receivables?
While this is something that should be considered (and discussed with a potential factoring partner - how is the customer interaction really handled?) it is essentially a reflection of the business owner's own worry about perceptions relating to their business and their abilities, not so much an issue for the customer base. Psychologically, we as humans do not want to show weakness. This is particularly true of those of us who are incapable of bearing children due to...shall we say, the lack of necessary equipment for doing so.
Factoring is not necessarily a sign of weakness - granted, there are situations where a company might be in such a predicament that factoring may be considered, but if the company's going concern status is questionable, most factors will pass on funding the deal (DIP funding is an altogether different topic, but can be done also). Actually, factoring your receivables can and should be viewed as a strength. You are using other people's money to provide terms to customers, take advantage of early pay discounts with vendors, smooth out cashflow, cover payroll and expenses, grow your company, capitalize on new opportunities for growth, utilizing the credit decision support and invoice collection expertise of a specialized firm, and on and on.
Most companies that I work with have customers that range from small mom and pop stores to huge multi-nationals. What we are finding lately is that many of the larger customers are well aware of factoring and how it fits into SME financing, and that the smaller mom and pop companies are finding out about it as well. Interestingly, as of a few years ago there was a report that about 75% of small to medium sized business owners did not know about factoring and how it could be used to fund their business. More importantly, the idea of a vendor using factoring as a means to fund their business is becoming more widely accepted as "normal".
Take for instance the June 2011 issue of The Costco Connection. A little background: The Costco Connection is a magazine sent out to all Costco Members. It is the fourth largest magazine by readership in the US (8.3 million monthly subscribers as of December 2010, they print about 96 million copies of the magazine annually) and the second largest among households earning $250k or more per year (it lost out to People Magazine, why readers are interested in the comings and goings of overpaid celebrities is still beyond me...surprisingly it beat out National Geographic who was third on the list). 18% of The Costco Connection readers are millionaires, and 55% own their own businesses. Not bad for a magazine printed by a retailer/wholesaler.
In the June issue, there is an article on page 21 that discusses the cashflow crunch and how to deal with slow paying customers. Factoring is referenced as a means to solve the issue.
In the August 23rd edition of Business Week's Today's Tip, factoring is listed second (behind asset based financing, which can be almost as challenging to obtain as traditional bank financing in some instances) as a good option for financing a business.
As we head towards a still uncertain future with the economy and the markets weakened and staggering, factoring is a valuable alternative to fund your business. Whether your bank is restricting availability, politely asking you to find other sources of funding, not funding on your export sales or purchase orders, or you might have a new business unable to secure traditional facilities, I would encourage you to look into factoring (and PO funding) as a means to achieve your goals.
Please feel free to contact me if you have any questions or if you would like a quote.
Sunday, August 14, 2011
Okay. So, I have decided to factor my receivables to improve my cashflow and working capital position, but my CFO/controller is grilling me about how to account for factored receivables and the funds collected...what do I do?!
There are numerous ways that ledger entries may be made to account for the transactions, funds advanced, and reserves. It is incumbent upon the business owner to seek counsel and tax advice on the best manner to account for these entries. Generally, the business owner is able to successfully maintain a stronger balance sheet when using factoring versus taking on additional debt or equity partners.
Should you so desire, please contact me directly for a guide on how to account for factored receivables. My contact information is available at the top, right of this website.
Disclaimer: The information contained herein should not be construed as advice, guidance, or recommendations regarding financial reporting standards or practices, nor should it be used as basis for any claims now or under any circumstances against the author or Bibby Financial Services. It is the sole responsibility of the business owner to consult with their tax advisor and/or attorneys in matters relating to financial reporting. Bibby Financial Services holds no claim to the accuracy or authority of the information provided in this article, or any documents provided by author, or associate, and shall be held harmless in any adverse actions claimed by reliance upon the information provided in any form.
Wednesday, July 27, 2011
The details of what is listed on customer POs, POs to suppliers, proforma and commercial invoices from suppliers, shipping documents and invoices to customers are of great importance in making sure that your transactions are done properly and that if anything should go wrong the documents can stand up in court. Items that may appear to be of no great importance generally are (Incoterms, shipping dates, cancel dates, payment terms, bill to and ship to addresses, etc.) and can be the difference between a transaction running smoothly with well established relationships and a distaster and damaged relationships. As in the rest of life it is the little things that really count.
Whereas a bank is mainly focused on cash flow and profitability, PO funders and factors are more interested in the credit quality of your customers and the performance capacity of your suppliers. When funding invoices and POs the key to the kingdom is solid paperwork.
Below is a testimonial from one of our clients which upon first reading is quite funny, but once you read it a second time you can see that by focusing on the documentation and flow of goods your funding company can actually help improve your successes and business processes. You can find it on our website here.
Our company sells Tasers and police training to the Brazilian government. I had a two-week deadline to complete a transaction that involved multiple currencies, different time zones, multiple parties and numerous legal and governmental hurdles. And what did Bibby do? They held my feet to the fire. They made me jump through hoop after hoop. Each day, there was one more thing to do and then another and then another. They made sure every step in the process was completed on time and in excellent order. The result was a perfect transaction. So now we are doing it again.
Remember, nobody else could do this deal. Bank after bank denied my transaction because they wouldn’t do purchase order finance. Then, speed was everything because we only had two weeks, start to finish, to get the product to Brazil. And finally, this deal mattered to our company. A lot. Because this one sale was larger than all our sales for the previous year.
Here’s how the deal worked:
Our company won a contract to deliver $4 million in Tasers to Brazil. The first step was for the government to issue to us a non-transferable letter of credit through the government-owned Banco do Brasil, stating the firm two-week deadline. Because the size of the deal was so large, our company needed cash to pay the manufacturer ahead of time. Bibby stepped in at this point. First, Bibby insured that the bid process in Brazil and subsequent agreement were properly executed. The letter of credit was assigned to Bibby, who then sent third-party inspectors to the manufacturer to make sure the product complied with standards set by the Brazilian government. Bibby paid the manufacturer based on that report. Bibby also coordinated with the manufacturer, trucking company and freight forwarder to insure that the goods would arrive in Brazil on time so they could collect from the LC. The goods were shipped to Brazil by air and the Brazilian government paid the letter of credit via the Banco do Brasil, sending the funds directly to Bibby.
What was it like working with Bibby? All of the things that needed to be done were done. Bibby knew the process to keep things moving forward. Bibby has my respect – they came through when others wouldn’t. It was very special in a common way, but they did it in a very special and uncommon way.
What was it like working with Bibby? Fun.
Thursday, June 23, 2011
Click here for a free quote/consultation.
Saturday, May 14, 2011
A colleague of mine has been kind enough to allow me to reprint here an article he wrote recently on how to attract capital. This is a bit outside the arena in which I work directly, but for some companies finding investment or a debt package may be the right way to go. Often it can work well with an AR / PO facility too.
Bruce Rector is the President of The Rector Group. He has worked with large and small companies across a wide variety of industries, including technology, healthcare, biotech, distribution, utilities, and consumer product manufacturing.
A graduate of the University of Virginia, with an MBA from the Wharton School, Bruce has established an enviable business consulting record in the areas of strategy, finance and operations, with a proven track record of value-adding engagements. therectorgroup.com
_____________________________________I've been having many conversations lately with CEOs and management teams about how to best position themselves to raise growth capital for their businesses. Companies are ready to start investing in their future again rather than just trying to survive. The good news is, with the right strategy, there is plenty of money out there ready to be put to work. Last month I did a quick tour around the state and visited with several venture capital and private equity shops. We discussed what companies should know when they are looking for capital. This article that I wrote for The South Florida Business Journal sums it up nicely and is a must read for business owners and entrepreneurs. While it is focused on early stage companies, the principles apply to all stages. Enjoy!
Are you ready for venture investors? You’ll have to prove it first.
Many early-stage companies seek outside investment capital in order to grow the company through additional infrastructure – both physical and human resources. I have met many companies through the years that eagerly sought funding and could explain why they deserved funding.
Passion is admirable, but regardless of how passionate you might feel about the opportunity the company is addressing, there are several criteria that management should consider in assessing the probability that they will actually be successful in attracting outside capital. Remember that any outside investor is going to take a very hard look at facts before deciding to invest. What are some of the facts they will consider?Read more.
Long story short: Bank lending is trending a bit upward year on year, but the recovery is fragile. Quit asking questions about Fed policy.
Wednesday, April 27, 2011
I woke up at about 4am, made coffee, and read stories by Miranda July, Charles Bukowski (from his book “Hot Water Music”) Nora Ephron (from her book “I remember nothing”) and half a story from John Updike before I was ready to start my own writing for the morning. It was 4:47am when I got an instant message on Facebook. “Hi James. Can I just get one piece of advice from you”. I didn’t recognize his name. “Ildar” something.
The sun was just peeking through the curtains. I felt good. Within a few minutes, the first train going into the city would pass by the house. I like the sound of it. I don’t like to talk to people so early in the morning. I like morning sounds. Privacy. That’s why I wake up early to start writing. I wasn’t sure I wanted to IM with anyone at 5 in the morning. But…
“Sure,” I wrote.
He had a business selling eco-friendly bags. And he wanted to raise money from venture capitalists and wanted to know how to go about it.
Thursday, April 14, 2011
Tuesday, April 12, 2011
It may be a bit alarmist, but I am of the opinion that if your products are tied in any way to the commodity markets (they probably are even if indirectly), then you need to take time to review potential impacts to your COGS as prices start to escalate.
The world is in much turmoil lately and this has already pushed up the costs of numerous items. Your supplier(s) will have to increase their pricing, and this means you may have to consider the same. Time to start discussing these matters with your colleagues and representatives.
The marginal growth of the US market seems to be more of a propping up than structural soundness. Look for opportunities to take discounts from your supplier(s) and incentivize your customers with them as well to maintain solid cash flow.
I expect in the next few weeks to get back to the more detailed posting that started this blog, but I will continue to place these smaller posts in the mix.
Wednesday, February 16, 2011
Source: Economicpolicyjournal.com and nytimes.com
My sense is that price indexes across the board are trending upwards, and I know well that I am personally paying more for items from coffee to gasoline.
My point here is to encourage you to look into this topic further and determine what preparations need to be made for your business to minimize the squeeze to your margins and find backup sources for you raw materials and/or components. You may also want to review your business structure and processes to find inefficiencies that may be eliminated.
With Federal, State, and Municipal debt at high levels, a rather moderate economic response to continued quantitative easing, weather related crop and arable land damage, and growing political unrest across the globe, watch your costs.
Feel free to call or email me with questions.
Wednesday, December 1, 2010
Once I've had time to digest the info, I will post my thoughts on the subject matter implications.
Thursday, September 23, 2010
Credit: Sean Kilcarr - FleetOwner.com
Wednesday, September 15, 2010
Tuesday, September 14, 2010
Insurance is something each of us will purchase at various points in our lives. Whether it be car insurance, health insurance, life insurance, homeowners insurance, or any other of the many types of insurance available it serves one main purpose: to mitigate the risk of loss. Credit insurance is no different. This type of insurance (aka: trade credit or receivables insurance) is designed to protect a business from an event where a customer who was offered net credit terms (i.e. Net 30 days) on an invoice cannot meet its obligation to pay.
Typically, this type of insurance will pay out an agreed upon percentage of the face value of the invoice in question, but as with all other kinds of coverage there are innumerable ways a policy may be structured and priced. Often the triggering event for a claim to be filed and honored is an insolvency, bankruptcy, or documented inability to pay on behalf of the customer.
Credit Limits/Decisions: When you apply for credit insurance you can submit only one customer (usually if they are a high volume exposure, read: multi-million), or, as is more often the case, your entire customer base, or perhaps a subset of your customers. Credit insurers would rather have multiple customers included as it minimizes their risks to some degree. Once you have submitted your list of customers to include in the policy along with the requested credit limit the agent will review the list, check their proprietary database of payment and financial information on your customers, and consult with their underwriters to determine how much credit they are willing to extend to each. You will then receive your quote with the credit decision list showing you what amounts of coverage per customer the insurer is willing to accept. You should expect the proposal and credit review process to take at least two weeks.
Pricing: This can vary, but is typically based upon a fraction of a percent of anticipated sales volumes. Premiums for the first year are typically due at the time of accepting the proposed policy and are then due on a monthly basis after that. Sometimes, you can find a company willing to accept less than a year's premium upfront, but expect to pay at least $10,000 for a policy. So, if your company has annual revenues of under $1 million credit insurance might be too expensive and you will want to conduct (as you should in any situation) a thorough review of any customers requesting net credit terms.
Providers: There are three main credit insurance companies in the world and they account for over 80% of all policies sold. They are Euler Hermes, Atradius, and Coface. As with any insurance you should shop around and find out which policy will provide you with the best combination of price, coverage, and service. Each of the above companies has its own database of credit information and one may approve one of your customer while another may not. Do not be convinced that the lowest priced policy will necessarily be the best for you as how responsive and attentive your agent is can be the difference between a miserable claims experience and a very smooth and helpful one. Also, it should be noted that as with every single insurance company on the planet (regardless of what they are insuring) if you have an imminent loss or a "pre-existing condition" there is not a company out there that can help. This is a risk management tool to help guide credit decisions and support you in the event of an unexpected loss.
There are also national, quasi-govermental entities that can provide trade coverage and guarantees, but these are usually focused exclusively on exports. In the United States there is the Export-Import Bank, and in Canada there is Export Development Canada.
How credit insurance relates to factoring: If your company factors or is considering factoring its receivables and you sell overseas odds are you will need to buy a credit insurance policy since the factoring company will require insurance. Sometimes they will take out insurance against your customers on their behalf, but note that regardless of how the insurance is structured the factoring company will have to be named as beneficiary/loss payee to ensure that they will be reimbursed for any factored funds that are not repaid by a customer/debtor. Factoring companies love to see credit insurance policies as it further mitigates everyone's risk. Just something to think about if you are looking for a factoring company.
This is a basic introduction to credit insurance. For more information, please contact my recommended sources and kindly let them know that Sean sends his regards.
Christina Montes de Oca
Euler Hermes ACI
ARI Global Insurance
Click here for a free quote/consultation on AR funding and credit insurance.