Insider Business: Wheat from the chaff

What do clients want in terms of managing supply chain risk?

Brian Lochead, business recovery expert, PwC
It is not just about how they survive themselves, but looking much wider within
their supply chain and whether there are any specific risks around that.
The approach that we took [for two customers] was very much working with looking
at their supply chain to know their suppliers, their customers and other key
stakeholders, to assess how critical they were to clients.
It was really looking at the 80/20 picture, to make sure we caught those areas
of greater risks but then expanding our review and analysis further than the
supply chain so we could help clients where possible and anticipate problems.

What are the first things FDs should do to understand the risk their
companies face?

Richard Simpson, COO, FD Solutions
Our approach is get management teams to focus on the basics. So looking at your
debtors every month, i.e. looking at patterns in the way people pay. And the
sort of customers that we are dealing with probably have ten or 15 key clients.
And it is very easy for one or two people to just be spotting the trends without
needing to put in expensive systems.
For most businesses it is not difficult if you are running Sage or Quickbooks or
TAS or something a bit more sophisticated, then you can pick up the trends very
quickly. So we obviously make sure that they are reconciling the bank accounts
and applying cash as it comes into customers. But the key thing then is are you
following up with your customers? Do you send a statement every month? Do you
phone them to remind them that something is coming up and is due? Are you seeing
the cash coming in? Because the best way to avoid credit risk is to stop a debt
getting to a size where it becomes a problem.

Is business using IT to help manage their risk better?
Subrata Biswas, business development manager, IBM Global Business Solu

With credit risk, it actually make clients think twice about spending money on
IT. They say ‘lets think about this, do we really need it right now or can we
actually survive for another six months with what we’ve got now and make the
investment then?’ What we have found is it is driving consultancy. So
professional services [advisers] go in to help access this and also look at
strategies to mitigate it – but not for IT directly.

What are the problems for SMEs?
Ganesh Selvarajah, adviser, Business Link
They don’t have sophisticated IT systems to develop their management information
from. But they have almost a gut instinct effectively about where the business
The problem they have is differentiating their cash flow issues from what is in
the bank. We try to get them to look at their risk assessment and the whole
They have to know where to start and that is where a lot of these guys have
problems. Where is 80% of your client base? Then start to look at what terms and
conditions you have and whether there is a trend coming through. Usually, at
this level of the business, it is a late payment or not full payment ­ and they
are pushing up against the buffers of their credit limits. That is a good
indication whether the clients they have are having problems ­ similarly on the
supply side. Such as if the supply side starts to not supply you absolutely
everything and there are little bits coming through short shipments.

As an FD, how do you drive risk management?
Hedley Mayor, director of finance, Octopus Investments
Its about trying to get full buy-in from the senior management team. So a
salesman knows the effect of giving a discount, discounted terms or longer
payment terms ­ and your purchasing guys understand that if they can push out
the payment term from 30 days to 45 days that helps as well. But the FD’s
ultimately responsible, and disseminating that information in a timely way is
very important.
You’ve got to get the process right. And then you work out what tool you use.
The tool is down to the FD or to the person who is using it. It shouldn’t be an
IT decision and it shouldn’t be a decision for the FD only. You must get the two
in sync – the processes and then the tool.

Chaired by Kevin Reed

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