Keep an eye on Partners’ Payments, Lithuanian experts advise
The current situation in Lithuania compels businesses to regard its partners with a deeper mistrust. The enterprises face challenges of their survival – how to ensure the continuity of activities, reorientate its services, and not lose the clients. Even those businesses which have a sufficient number of clients, feel worried about whether their partners are still trustworthy and will make payments on time.
As soon as the quarantine was announced, the queries about the solvency of other enterprises have increased by approximately 1.5 times. From March 16 to April 14, in comparison with the identical period of time before quarantine (February 16 – March 14), the system of credit bureau “Creditinfo” fixed the increasing number of queries from companies of the following sectors: building constructions and real estate (+56%), public utilities (+44%), transport (+44%), industry (+41%), insurance (+32%). Having been given the opportunity to share information about the debtors, 120 enterprises expressed their wish already during the first week. When the economic situation is complicated and the perspective of the enterprises’ mutual payments is bad, to preserve a high solvency ratio becomes vital. Head of credit risk assessment of “Creditinfo Lietuva” Rasa Ruseckaitė, proposes to immediately tighten the policy of credit risk control of the company and perform the following actions:
- Re-examine the clients’ portfolio more often, watch more closely the companies which fall into a high-risk group. We recommend to review and reassess the financial situation of high risk clients and the clients who must be watched at least once in a quarter. Analyze the process of the client’s making payments, how long the payments have been overdue, how the financial situation of the enterprise is changing. If you have received information about a lawsuit filed against the client, measure the risks that you may face, and consider the behavior of other creditors. If other enterprises started debts recovery in a court, sending polite reminders most probably would not be the most effective means. Taking into consideration great uncertainty, the risk appetite for credit should also be reduced. Analyze the credit limits granted to the clients and consider the possibility of a more conservative behavior regarding shortening the time for payment.
- Significant changes in business occur every day, so recognize and constantly watch the warning signs. It will be easier to assess the clients’ situation if you have a predetermined opinion of what events should be considered critical. The increasing risk can be made known by a new lawsuit regarding debt, a new asset seizure or the officially announced information about debt. However, there are some other important signals such as a change of the debtor’s address, a replacement of financier or head of enterprise, unwillingness to communicate, a change of accounting methods and others, which are often considered as not serious enough.
The client’s solvency situation having worsened, immediately prepare a specific plan of your further actions. The speed and adequacy of actions can determine the amount of your losses. Firstly, we recommend getting in touch with your debtor, discussing the present situation and scheduling of clearing the debt. Other steps can be as follow: to cancel the granted credit limits, to terminate the means of advance payments, to reconsider the conditions of agreement, and to apply means of early exaction. Moreover, estimate the possible losses and their impact on the liquidity of your company.
- Use external information about the partners. In evaluating the clients’ portfolio, it is important to use not only the existing internal information, but also to look for available external information. It can include data announced by the Centre of Registers, Social security institutions, Department of Statistics, bankruptcy administrators, State Tax Inspectorate, the National Court Administration, credit bureau and other sources. They will help receive a preliminary signal about the impending problems of the client’s solvency, even if they make payments to you on their due date thus far.
- Exchange data about the debtors. Exchanging data will help you recover debts since the debtor who was announced in the credit bureau, will have restrictions on receiving loans, making agreements of communication, Internet supply and other agreements with deferred payments. The debtors of your enterprise will become known to other participants of the credit bureau – financial, telco’s, insurance companies and other Lithuanian enterprises which estimate their clients’ solvency in the credit bureau. And the debtors’ awareness that information about them will become public in the debtors’ data system, can be sufficient motivation to fulfil their obligations.
- Monitor how the solvency of your own company appears in public. Seeking to maintain a high level of solvency of your enterprise and business partners’ trust, it is important to observe not only the indicators of your clients’ solvency and riskiness, but also the public image of your own financial situation. To feel secure under the conditions of uncertainty, the enterprises quite often exaggerate the credit risk and thus take strict precautionary measures – without warning their partners, they share their debts with the credit bureau system and appeal to the court. Do not wait until the creditors are the first to inform about the debts and their actions. Using the monitoring measures available in the market, be the first to learn about the problems of your solvency and react instantly to impending threats to your business. It is especially important not to miss the unpaid bills due to inconveniences of remote style of work or simply through inadvertence. And having learned about a new debt, take actions with no delays.
- If necessary, reorientate the company activity. Communicating actively with the existing partners, discussing with them and reacting to their needs, you can discover new niches in business. There are numerous examples in the market. Alcohol industry companies started to produce disinfectants, cleaning companies began to provide disinfection services, the fashion house sows masks, and a great number of businesses have moved to online serving. Be bold and creative. The present conditions are extremely favorable for new business directions and even experiments. If the number of clients and orders has decreased, turn to your current clients, and think about the untapped potential. Identify low risk clients and give them a maximum of attention, consider a wider range of cooperation possibilities, and react to changing needs.
Rasa Ruseckaitė – Head of Credit Risk Assessment, Creditinfo Lietuva
Ieva Kutkaitė – Marketing Manager, Creditinfo Lietuva (Editor)