Business to business lending

Business to Business lending

Introduction

  • In a modern entrepreneurial economy business to business lending needs to be approached differently. Convention needs to be challenged and entrepreneurship given space and opportunity.
  • The micro enterprise today could very well be the Google of tomorrow
  • Lenders need to be both intuitive as well as analytic in their assessment, one without the other could prove to be fatal.

This article focuses on 4 key lessons to enhance one’s intuition and analysis.

Lesson 1 – Reduce risk by assessing:

Management

  • Thoroughly analyse future prospects were companies have young entrepreneurial management teams which only managed through a growth phase and not downward cycles
  • Be circumspect of companies with weak management information systems in today’s modern tech savvy economy

Risk Appetite

  • Beware of borrowers with high risk appetite against small absolute size with preparedness to take large financial risk

Strategy

  • Avoid companies highly dependent on connections to make money together with the absence of a coherent business strategy

Cost Structure

  • Be wary of businesses with a low cost structure because:
  1. Often they lack depth of management
  2. They are stretched in the tough times
  3. Too much emphasis on trusted employees -trust does not equal competence

Lesson 2 – Be aware of key decision makers:

Management and Owners

  1. Intermingling of private and business assets
  2. Gearing above personal debt
  3. Family dynasties – is the next generation so skillful / hungry

Lesson 3 – Pay attention:

  • to “flavor of the month” sectors – be careful with perceived internal expertise
  • to forecasts for market growth particularly where there is a progressive build of expectations
  • to highly leveraged companies because they are more vulnerable to smaller shocks
  • to reliance on “name”
  • to where you and other lenders lend

Remember – “Speed of Action” if warning signs emerge.

Lesson 4 – The detail

Financials Information:

  • Review intelligently
  • Projections – a dose of scepticism might be helpful
  • Devil is always in the detail but don’t lose sight of the big picture
Doctor with debtors book

Are you asking the right questions?

When a new patient registers at your practice, do you ask them all the right questions?

Even if you are asking the right questions, are you making sure they provide the information?

A surprising number of doctors do not obtain the necessary information needed to keep track of their patients should they decide to not pay their account.

Send us your patient registration form and we will review it and suggest any changes free of charge.

List of debtors

Is your debtors book causing you concern?

We have assisted many companies and organisations significantly reduce their debtor’s book and increase their cash flow in a short period of time. From suppliers to the motor industry, to fashion brands, retailers and prepaid electricity and airtime distribution companies, we have assisted them be reducing their debtor’s books by up to 90%.

We deal with high value business to business (corporate) debts as well as business to consumer debt.

If your debt book is growing, isn’t it time for you to take control? Contact us today to find out how we can assist you reduce your debt book and increase your cash flow.

Credit score and default listing status

Ten tips to maintaining a healthy credit rating

We should always try to maintain a healthy credit record. After all it’s one of the first things lenders and credit providers look at when deciding if they should provide you with credit.

Your credit record will highly likely affect the outcome of your application for any of the following, a credit card, a personal loan, a bond, car finance or even specific jobs, to mention but a few.

Here are 10 tips on how you can maintain a healthy credit rating:

1. Pay your accounts on time.

2. Pay the full amounts due.

3. If you cannot make a payment due to unforeseen circumstances contact the creditor and make alternative arrangements to pay back what you owe. Often creditors are only too happy to accommodate you if you communicate with them.

4. Do not buy items on credit unless you are sure you can afford the repayments.

5. Keep an eye on your personal credit information. Obtain a copy of your credit report so you know where you stand. You can also check for incorrect information.

6. When applying for credit, always read the fine print.

7. Try to keep your monthly credit repayments no more than 25% of your income.

8. Never ignore a letter of demand for payment. These should be dealt with as a matter of urgency.

9. Never ignore a summons to court for non-payment. These should be dealt with as a matter of urgency.

10. Never give false information on an application for credit.

Overdue accounts ready for debt collection

What is an Incidental Credit Agreement?

The National Credit Act defines an “Incidental credit agreement” as:

“An agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions

(a) a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or

(b) two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.”

Extract from National Credit Act. Page 20.

The maximum prescribed interest rate for Incidental Credit Agreements is 2% per month (24% per year). Interest rates can be found on the website of the  National Credit Regulator.