Wednesday 19 January 2011

HMV distributors denied credit insurance. Who carries the can?

pic: Albany

News that credit insurance has been withdrawn on some supplies to HMV is not just ‘something for the Finance Department’.

Whilst their colleagues in finance track the historical reports on customers in Companies House, the salesforce continue to be the essential ‘eyes and ears’ of the company on the ground, and have the potential to gain a current perspective.

Finance-focused NAMs realise that if a customer goes bust owing £150k, a supplier making 5% net profit has to sell £3m in incremental sales to recover the loss. Furthermore, in the case of the home entertainment sector, such sales would have to be made to the major multiples, both on and off-line, adding further to trade concentration. This would tend to increase home entertainment's share of mind for such retailers, possibly diluting their interest in other categories.

To minimise such risk in the future, it is crucial that NAMs heighten their sensitivity to the warning signs: loss of market share, profit-warnings, possible breaches of loan-covenants, and a falling share price.

To this a NAM can add their knowledge and understanding of key people in the decision-making-process, together with their pan-trade insight on how other retailers of the category compare. Finally, constant monitoring of the cost of the credit they give to the troubled customer and insistence on 100% compliance can help to reduce the risk of trade exposure.

After all, it is your money, at the moment…

(See 'Spotting the Signs of a Customer Going Bust')

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