supplier and credit insurance

Have a small engineering company. After Christmas we had a major drop in sales and were unable to keep up with monthly supplier invoices. With some drastic cut in expenditure (mainly suspending both directors salaries for 6 months), we are well on the way to correcting things. At this point, some of the smaller suppliers have been paid off, the larger ones, we have payment plans with and most are happy.


One supplier that we have a payment plan called me up this afternoon saying that there credit insurer 'Atradius' is putting added pressure and will not accept the fact that we have agreed in principle to pay 3k this month. The supplier in question says that the insurer Atradius wants us to give post dated cheques for the agreed amounts in order to tie us to the payments.


I suspect something else is going on here, the supplier has said that while they are happy with the agreements and payment to date (we have met every payment that was agreed) but they are now being forced into demanding the post dated cheques. They supplier also says that is we do not comply then the insurer will force them to take legal action and put in a claim for the amount in question.


Does anyone know more about creditor insurance? Its seems odd to me that an insurer would look for the insured to make a claim. As it stands the outstanding amount should be paid off in a couple of months and possibly before the matter would end up in court.


I think there are other reasons that my supplier is looking for post dated cheques and maybe they are in more trouble than me!

Good news that things seem turning around for you! Hopefully you can keep things on track.

It might help if you could specify the following:
- are you a major/minor creditor of this supplier? Have you any idea of the percentage your business is of their turnover?
- how long have you been buying from them?
- what was the total of the original debt?
- what is the total current balance outstanding?
- how long has this current balance/debt been outstanding?
- what kind of goods/services did they supply? Have these been consumed or is there any stock left?
- will you be continuing to purchase from this supplier or is there an alternative you could use?
- also, what were the original payment terms (30/45/60 days)?

Thanks for reply,

- Would consider ourselves to be a minor creditor, they reckon to have 1000+ customers.

- The total origional debt was 18k.
- As of this week, the amount outstanding is 10k, we have been making regular payments since the end of Feb. The origional debt would have been due in Jan, based on 60 days from purchase.
- They supply steel stock, all items delivered have been consumed.
- I have been looking around and found other suppliers, after this I am strongly considering not buying off them again. They did have excellent service and good prices.

I know for a fact that other engineering companies owe far greater amounts and have offered them a fraction of it to settle, my feeling is that they know they can put the squeeze on the smaller outfits unexperienced with debt problems who will respond to threats of legal action, judgments and beening published as bad creditor etc.

First of all, I am not an expert on credit insurance - nor indeed have much experience of it. However, I do know a bit about supplier management....

The good news is that you have alternative sources of supply for steel, should the worst come to the worst. Therefore, you can focus on this particular issue of payments without worrying about the supply line for your business. Getting credit from new suppliers might be difficult in this environment, though ... but that is a separate issue.

It seems from my reading of it is that the terms of payment were rescheduled and agreed with the supplier at 3k per month. So far, so good.

Then, probably due to many of their clients suffering similar cashflow issues, your supplier has reviewed its credit management process and sought the services of a credit management/ insurance agency. The credit insurer has correctly advised your supplier to put more pressure (including the typical hollow threat of legal action) on expediting payments. Presumably they have provided insurance based on certain assumptions around target credit terms - yours are probably outside their target and they are now trying to recover the situation. Additionally, they have sought extra assurances by seeking post-dated cheques.

So, if the reading above is correct, there is nothing untoward about your supplier changing their terms or demands (including post-dated cheques) on you: it is merely prudent cash management on their behalf. I wouldn't think there is any ulterior motive; nor indeed read much into rumours about settlements that others have made. In the long run, debts really should be paid at some point and not settled for below par value. If you do settle or seek to settle for below the amount due, it will potentially affect your (a) credit rating and (b) your reputation.

Also, in the long run, you don't have to deal with this supplier again - so you can look forward to that! However, don't tell them at this point that you will switch away - that will only get their backs up. Keep them 'warm' about future business and keep the relationship as good as you possibly can - even though they might be the last people you ever want to deal with again!!

At this stage, my advice is to seek specific and immediate assistance from your accountant in terms of prioritising your debts. You probably need to stand back and look at the overall business and your recovery plans and analyse whether your cashflows are being prioritised correctly. (For example, you need to make sure you aren't prioritising cashflow to suppliers who are just shouting the loudest, over, for example, commitments to employees or utilities companies.)

Following such discussions and analysis with your accountant, propose a final payments schedule with them - and stick to it. If this is a bona fide payments plan, based on correct cashflow priorities determined by an accountant, there's really no arguing with that - even if it does go to court!! However, I personally do not believe post-dated cheques are a great idea, as you cannot predict the future and you may regret writing them.

This is just an opinion. Hopefully it'll help. And hopefully some others may have one or two ideas.

This is incorrect.

The company I work for also have insurance over bad debts from Atradius and that is not how they operate.

Your supplier should not have informed you of this.

Atradius do not get involved unless you have gone into receivership or liquidation or if your supplier feels that you are a bad debt with say a 4 month aged balance, then the FD of your supplier makes a call to Atradius who then take over the debt and pays your supplier a % of the debt owed.

http://www.atradius.ie/products/creditinsurance/overview.html

Ring Atradius yourself and ask them what they process and procedures are regarding potential bad debts and they should advise you.

From a Credit Control point of view, I am happy when my customers come to me with a repayment plan and a summary of business performance. I will assess their business, management and overall history. Should the plan seem realistic to be achieve, I will agree to repayment terms. However, the onus is on the customer to stay in contact with the supplier and work together through hard times in order to keep every one ticking over.

From a business point of view, you should examine your own profit margins to see if you are using the correct mark up in recessionary times. Find that magic margin to make your products/service moving again.

Good luck.

Thanks for advice. Since we have gotton into difficulty I have made it a policy no matter how painful to maintain contact with suppliers, discuss problems, never ignore calls etc. There are times after experiences like this that make you wonder.

Thanks for the advice about adtradius, I suspected that some of what was being said/threatened was hot air to frighten us into doing something that we didn;t want or could uphold.