Q1 March Newsletter - bdo singapore

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Continued...... Importance of Credit Risk Management in a Global Credit Crunch Cheque Payments Is it an accident or a deliberate attempt by a debtor to buy time? It should worry you if you start experiencing the following situations more frequently: • Missing signature(s) on cheque • The words and figures on the cheque differs • The cheque is post-dated • Cheque that has been purportedly mailed out but never received by you (lost in transit or was it never mailed?) Queries and Excuses • Repeated requests for copy of invoices / statements of accounts • Numerous queries on account • Phone calls are constantly channelled to voice mails • Resistance by customers to return calls Information from Staff Sales teams are the business’ eyes and ears in the marketplace. It pays to keep our ears on the ground and likewise, it is worthwhile to be in constant communication with fellow industry players. Sales staff should indulge in trade talks with their customers. During visits to customer’s premises, one can observe if there are high level of unsold stock or smaller and infrequent orders. There are just some simple observations to gauge how the customer’s business is doing. Besides soft evidences, the Company can make use of hard evidences, which will require you to have access to all available financial data of the debtor. Information such as, income statements, balance sheets and cash flow statements and interpreting these financial data will facilitate your assessment of the debtors. Analytical models / tools such as Altman Z-score (Z-Score Insolvency Prediction Calculator), Liquidity Ratios, Efficiency Ratios, Profitability Ratios and reports from credit agencies also can be used to assist the Company in reviewing your customers’ credit worthiness. It is crucial for business to constantly examine the debtors’ operations, much more so that the world is in a recession, and it is of extreme importance not to rely too heavily on one customer and review other customers’ viability and creditworthiness. And as the old saying goes, “Turnover is vanity, profit is sanity and cash-flow is reality” Article contributed by: Dev Nandwani Senior Associate Business Restructuring Services Tel: 68289118 devnandwani@<strong>bdo</strong>.com.sg
Finding Overseas Partners - Know Thy Distributors Well Before “Tying the Knot” Exporting overseas remains a challenge for SMEs wishing to venture into international markets. In the latest 2008 DP Information Group SME survey, companies stated that the top success factor was being able to find “the right partner overseas”. Hence, it becomes imperative for our local businesses to possess the relevant knowledge on how it can go about finding and securing the right distributors in a systematic manner. In this article, we examine some of the key issues on how ideal distributors can be secured in terms of their identification, evaluation and selection. In essence, the entire process can be organised in five key steps and they are: • Know What You Want First • Understand Your Markets • Evaluate Your Potential Distributors • Do Your Due Diligence • Secure The Deal Step One – Know What You Want First Before a company embarks on finding its ideal distributors, it has to know what it really wants. This entails a thorough understanding of its own market position, product and service portfolio, target customers, key competitors and the strategic outcomes it hopes to achieve via distributorship in each market. These inputs should translate into a desired criteria list that encompasses the financial and human resources, image and reputation, market access and network and preferred credit terms of the distributors in each country. Step Two - Understand Your Markets Simultaneously, one should also assess the current political, economic, social and technological environment in each target market. In addition, a holistic understanding of the relevant industry’s market size, consumer spending, competitive landscape, distributor channels and future trends should be achieved. Having determined the viability of distributorship in these markets, a list of potential distributors could be developed via one or more of the following ways : • Company and relevant trade association websites • Local and foreign investment trade agencies • Insights from other local industry players and business associates who have ventured into the same markets • Seek professional advisory services Step Three - Evaluate Potential Distributors This step represents the climax of the entire partner selection process itself. How should one benchmark an interested distributor? We advocate that it would be beneficial to adopt a methodical approach which duly evaluates a distributor using a combination of both hard and soft factors as suggested below: Focus Criteria Management Profile (Who is Your Distributor?) Firm Resources (What does Your Distributor have? Market Access (Where can Your Distributor Bring You?) Commitment (Which way does Your Distributor do Business?) • Experience in same and/or similar businesses • Responsiveness in sending necessary information • Image and reputation • Similarity of vision and business goals • Market knowledge • Turnover • Employment • Strength of Business network • Similar products carried by distributor • Countries with distribution operations • Cities with distribution operations • Retailers distribution • Annual order size of goods • Credit terms Undertaking a benchmarking exercise compels a company to approach and customise their distributor analysis according to their strategic needs. It allows for the evaluation and ranking of potential candidates in order of preference which saves time and resources when deciding who to approach first when securing the all important “breakthrough first deal”. Step Four - Do Your Due Diligence Due diligence of the distributors should be conducted to validate the information provided by them. It reassures the company that it will be dealing with both reliable and reputable parties. Required information that could be obtained on a best endeavour basis includes: • Audited company financial statements • Key customers references • Independent credit bureau and agency ratings
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Q1 March Newsletter - bdo singapore

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