Debtors – no credit for locking the stable door after horse has bolted

Practices are generally paid on the nail by walk-in clients once treatment is administered, but some – usually equine and production animal – can suffer badly from amounts owed that can add up to a large negative balance. It’s the reason the BVA announced in 2016 it had partnered with a debt recovery firm to help practices reduce their bad debts.

Clearly, practices can spell out their terms and conditions on their websites, and outline invoicing terms and unpaid fee amounts, but if clients don’t read or choose to ignore the conditions then the practice is no further forward.

But what of commercial clients where practices may attend and seek payment via invoice? Many work on trust and hope, only to wonder when bills go unpaid and customers go under what they could have done better.

Hindsight is a wonderful thing, but it’s not as good as foresight and, in a commercial context, those practices that use credit information services will inevitably do better than those that don’t.

So, what is credit information? Craig Evans, head of business development at Graydon UK, a credit information provider, said credit information is, in short, “information gathered on a company or an individual to allow the assessment and analysis of a particular credit transaction”.

In other words, it allows sellers to learn about their clients to see if they are likely to get paid on time by their clients – both actual and potential.

It’s well known that the veterinary sector works on thin margins. A SPVS Profitability Survey from 2016 led to the BVA expressing concern over the number of practices with below average or poor levels of net profitability. Granted, the sample size wasn’t huge – nine mixed animal, four equine and 88 small animal practices – but the results showed 30.3% had net profit margins of 18% or more (considered excellent) and 15.2% returned margins of 12% to 15% (average), but 54.5% saw net profits of 12% or less (below average to poor).

It’s highly likely those practices doing well had nailed down their costs and credit control procedures.

If a practice is working on a 12% profit margin and has £20,000 in bad debt write-offs in a year, it would need an additional £166,666 in sales to compensate for the loss.

Credit information won’t insure bad debts, nor will it prevent them, but it will help keep bad debt in check.

What exactly is credit information?

A number of agencies in the UK (and more around the world) hold statistics, and financial and corporate information, on businesses and individuals. These agencies offer access to their vast databases – some on an ad hoc basis, others via subscription – to firms wanting a better and more balanced view on their customers, both in the UK and overseas.

As Craig put it: “From official company data, public records and more than 30 other good data sources, agencies hold information on company background, credit scores and credit limits, and risk categories. Depending on the type of organisation record, it will have ownership and financial information on the one hand, or company sizing data on the other.”

Some agencies specialise in particular types of information and most cover almost all forms of commercial organisations, including sole traders, partnerships and companies, as well as private citizens. Information can be found on virtually any aspect of their financial health and corporate history.

Data held includes company address and registration, turnover, profit, bank address and sort code, director name and home details, personal payment defaults, corporate payment history and financial details, company mortgages and charges, and shared ownership. Naturally, the amount of detail depends on the service offered by each credit company and the amount the enquirer is prepared to pay.

As to how the information is garnered and its accuracy, two types of data exist – structured and unstructured. The former has been processed, while the latter is raw data from various feeds. It’s the structure that gives the agencies their value.

Craig said: “Unstructured data is changed into structured data through a filtration and verification process to make sure the data is accurate and reliable. It is then organised, with further information added and intelligent analytical systems deployed to discover links and trends.”

He added, from Graydon’s point of view at least, this processed information when converted into insights provides clients “with powerful decision-making capabilities”.

Experian’s Ade Potts said his firm combines information on businesses from several sources, such as information from Companies House and Registry Trust. He said: “We carry out more than 200 validation checks to ensure the information is accurate before loading it to our live databases.”

Experian finds payment performance data helps “provide a timely and accurate picture of a business’ track record and any cash flow issues it might have. For smaller businesses, where there is little information available, we also take into account the personal credit scores of directors”.

Services available to businesses include credit information reports, credit risk checking software, software links for automated transactional decision-making by a firm’s own system, and monitoring and alerts of defined clients.

It’s also possible to have a sales ledger or debtor book reviewed using the latest payment performance data to identify clients at high risk of paying late or defaulting.

The cost of credit information isn’t prohibitive – especially when considered against the cost of non-payment. Ade said routine credit checking is good practice for SMEs “so they can ensure the company they are dealing with is a real, trading and viable business. You can then use a business credit report to make an informed decision on how much credit to extend”.

Experian has a number of products, and one – Experian Business Express – offers instant credit reports on clients. An annual subscription starts from £300 plus VAT. Looking at the other side of the coin, firms may want to see how they are viewed as a credit risk. For this, Experian offers My Business Profile, which is £300 plus VAT a year.

There’s more to credit information than credit

Clearly, credit information is a valuable tool for preventing commercial loss through non-payment, but it also has other uses. Consider fraud is a major issue in today’s world (not that it’s anything new, but technology has definitely helped those committing fraud), and many individuals and organisations do try to obtain credit through deception. One weapon in the fightback is credit information. This, as Craig said, is because agencies have been gathering and validating information and data from around the world for years, and their fraud antennae work rather well. He suggested clients should use agencies for more than just the raw data. Instead he said firms should “work with credit reference agencies as they know what they’re talking about” – the point being, agencies can offer advice on risk.

He detailed a couple of examples where credit information has aided the management of risk: “One of our clients, a luxury car manufacturer, continuously monitors the risks in its entire global supplier base. From a compliance and regulatory perspective, it needs to know they’re ethically and financially sound.”

Craig said for the client, the supply chain is all about risk more than credit: “Suppose a hose for the Aston Martin DB11 is made in Poland and the manufacturer goes bust. This could cost the client millions as the production line will stall during the search for a new supplier. Many manufacturers in the automotive industry are very interested in supply chain risks.”

Flipping over to the customer and credit risk side, another client of Graydon, a sports car manufacturer, has a number of franchised dealerships globally, through which it sells its cars. Craig said: “They need to know the dealerships are financially strong enough to pay for delivered cars. The client is owned by a Malaysian conglomerate and is pushing its cars heavily into the Far East. China, for example, has plenty of new dealers, but is experiencing a slowdown.”

It’s clear, then

So, while some practices may be content operating on the basis they don’t yet have much bad debt and are paid within a reasonable period of time, how would they survive if their confidence was shaken because of client default? The better option is to understand your clients before you invest time, money and resources. After all, if you’re not going to get paid, you may as well give your staff the time off instead of having them out on an expensive wild goose chase.