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Creating better clients

12 December 2012

The UKWA advises that investigating credit worthiness and clearly defining terms and conditions can prevent tricky relationships developing with clients

The UKWA advises that investigating credit worthiness and clearly defining terms and conditions can prevent tricky relationships developing with clients

An efficient credit control department is absolutely essential for any company hoping to escape the jaws of the current recession. But credit control isn't just about making sure your invoices get paid on time. For 3PLs, the need to investigate the fiscal worthiness of both existing and new clients has become an increasingly crucial function.

“It is important to run financial checks on a new client before you start to do business with them, but it is equally advisable to run regular checks and keep up to date with the state of the balance sheet of long term customers,” says Julia Lucas, financial controller of Hellmann Worldwide Logistics and chair of the UKWA's finance committee.

To ensure that exposure to risk is limited, it is advisable to build up a picture of your client - or potential client's - financial position. Credit checks, such as those offered by Experian, are a simple and cost efficient way of doing this. The checks can also be supported by research at Companies House to ensure that the client is up to date with the necessary paperwork.

But what if your investigations throw up doubts about the customer's status? “If your research indicates that the client's financial position is marginal, you should take a closer look at the company's full accounts,” says Lucas. “The accounts should give you a better understanding of the firm's position but, if the figures don't give you any comfort, try talking to the financial director or managing director,” she adds.

Lucas continues: “Personal interaction is important. If key personnel are happy to talk and are open about their financial position and seem on top of the company's strategy, you get a more positive picture of them. As with so many other aspects of business life, the personal relationship you have with your clients can be very useful in helping to manage the effects if they encounter difficulties in paying their bills to you. Keeping the lines of communication open can make it possible to set up alternative payment patterns to support your client's cash flow while ensuring you collect your debts within a reasonable time.”

Of course, in the current climate particularly, it is hard to turn business away and any decision to forego a new account or restrict credit to an existing one for financial reasons often leads to confrontation between credit control and the sales department. “Sales people are always keen to do the deal but it is important that they realise that if the new client doesn't pay, then the company doesn't make any money. It is as simple as that,” she concludes.

Even when clients prove credit worthy, it is advisable to use standard industry terms and conditions in dealings. These are principally a mechanism to regularise the commercial relationship between the supplier of a product or service and the supplier's customer. For a service provider, using standard terms is a cost-effective way of protecting your position, especially when dealing with numerous customers.

However, standard terms can only perform their function if they are effectively incorporated into the contract between the parties.Warehouse operators, hauliers and other logistics service providers need to ensure the customer (and the owner of the goods, if not the same person) understands and agrees that the contractual relationship will be on the operator's terms.

Seeking to rely on terms only to find that they have never become part of the contract is an easy situation to find oneself in, especially when handling goods that are owned by someone other than your customer. It is always best to have your standard terms and conditions incorporated in writing, as proving that they have been agreed orally is not always straightforward.

It is important that hauliers who are looking to add warehousing services to their service portfolio have some form of storage contract in place as, surprisingly, goods held in a warehouse face a much wider range of potential causes of damage than goods in transit. “Once in the warehouse, careless handling - whether manual or by forklift truck, damp, fire, pest or even the proximity of other goods which have the ability to contaminate products stored nearby, are all potential causes of product damage,” says UKWA CEO Roger Williams.

“The value of goods stored may be high and, unless the
warehouse keeper has dealt with the issue of value in a storage
contract, he may be liable for the full value of the goods in the
event of a disaster.”

It is, therefore, important that within all contracts the
responsibilities of the customer and the logistics service provider
are made clear.

Very often hauliers, warehouse operators and freight forwarders quote more than one set of terms when dealing with customers. They may, for example, have separate storage terms and haulage terms. If a problem arises - say, a dropped pallet in the yard - it is sometimes not clear which set of conditions applies to that situation, and sometimes the legal position may be that none do.

That's why many companies in the warehousing and haulage sectors, use the UKWA Conditions of Contract as the basis for their standard terms and conditions. UKWA Conditions of Contract cover a broad range of services such as freight forwarding, haulage and warehousing. By using UKWA's Conditions our members do not have to prepare three different contracts to encompass these distinct areas of their business - one document is sufficient.