in.risk.solutions.inc. “credit from the inside out” the whys, the wherefores, and a few...

In.risk.solutions.inc.

“Credit From The Inside Out”

The Whys, The Wherefores, and A Few InnovationsA Presentation to The Professional Credit and Financial Association of CalgaryQuality Inn, Calgary, September 16th, 2008

Ian LydiattPresidentInRisk Solutions Inc.E-mail: [email protected](403) 815-2173

mailto:[email protected]

http://www.inrisksolutions.com/


AGENDA1. Credit`s agenda vs others

2. Traditional approaches

3. Securities & potential problems

4. Blow-ups & BOPs

5. Credit – a revised role to consider

6. Cost benefits

7. Tug-of-wars with other `credit takers`

8. Credit tools

9. Credit innovations


Volatile Times : Opposing Views

• Internal demands for increased credit

• Requirement to manage more = better, with less

• Bottom line left to ‘other’ departments, marketing/mgmt/shareholders need revenues up


Credit Relative to Other Departments

Credit Relevance for a company - relative in proximity to Mktg

Credit’s Motivation – Directly in proportion to finding solutions

Credit is not a pawnbut a King-Maker


The Traditional Approach

1. Assess Financials

2. Compare to Requirements

3. Check references

4. Check Credit Reporting Agencies

5. Conclude = Approve or Reject subject to:– Pre-payment– Parent Guarantee– ILC - Cash Deposit– Credit Insurance – Performance Bond


Potential Problems - Securities

• Cash Deposits or Payments– If taken within 90 days of a business failure– May be deemed to be part of why business

failed– Always needs to be in the `normal course of

business ` - no lump sums on past due

• Fix . . . All arrangements done in writing and in advance as a contemporaneous exchange of agreement & goods-services



• Certified Cheque

– If certified by debtor . . .




– If certified by debtor . . . • Can be cancelled for lame reasons:

``lost – stolen`` (maybe fraud)




– If certified by debtor . . . • Can be cancelled for lame reasons: lost - stolen

(fraud)

– If certified by creditor . . .




– If certified by debtor . . . • Can be cancelled for lame reasons: lost - stolen

(fraud)

– If certified by creditor . . . • Can`t be cancelled if . . . receipt obtained as direct

contract between creditor and bank



• Visa – MasterCard (not sure on AmEx) . . .

– For large transactions – say over $1,000.00 . .

These can be reversed without any ability to defend as bank will not irrevocably provide


If your gut tells you there will be a problem ….

… if you open an account you consider is too risky without security,

you are likely right to think it will blow up; it’s just a matter of time

….. be careful


“It is nearly impossible to

calculate the half life of a

landmine, but knowing its

properties is half the battle”


Credit as a “New” Resource

• Ask to particpate in weekly sales meetings

• Provide positive “we’ll find a way” comments

• Don’t be seen as a ‘No way’ person

• Volunteer to do a slide presentation to sales & marketing as to what credit does


Net Loss Relative to Revenues($000s to %)

1,000 400,000 200,000 100,000 50,000 25,000

500 200,000 100,000 50,000 25,000 12,500

200 80,000 40,000 20,000 10,000 5,000

100 40,000 20,000 10,000 5,000 2,500

50 20,000 10,000 5,000 2,500 1,250

.25 .5 1 2 4

…in any loss [left column], you have to double the sales shown at your profit % [bottom row] to recover loss and make target!


Credit as a “New” Resource

• team player meetings essential

• Legal and credit teams have same view

• Credit/legal needs to be involved at the start of any strategy or complex scenario so . . – both can interact/develop ideas to resolve – both get all the facts first hand as team

members


Team Work = Organizational Win

Marketing

Credit L

egal

Business Development

Mgmt

LeadScope

PlanMethod

Glue

• Involvement from day one to finish• Weekly meetings – updates• Ideas Happen – Department barriers melt down

Banker

Canada Revenue Agency

Other Creditors

Other Debt

Shareholder Payments


Credit has to be the ‘gate keeper’ to compare legal entity within the:

»Documents

»Security

»System

»Billings


Credit has to be the ‘gate keeper’ to continuously examine legal entity

»Consolidation changes»Outside agencies»State Documentation»Certificates of

Incorporations


What to look for as indicators …

• Accounting irregularities and statements that ask more questions than answer “Nothing we published is inconsistent with what we told people in the

past, it’s just more complete” Robert Brace, CFO, Duke, Jan 2002

• Sudden change to accept cash calls, security requests, & contract changes initiated by you

• Sudden increase in credit references, or credit lines – have good reasons when permitting


Credit Tools for Volatile Times

• Insurance broker [no-cost] gives advice on:

–credit insurance

–performance bonds

–other security instruments


Barn’s burnt down …….

now I can see the moon

Masahide


Credit Innovations


Credit Innovations

Tri-Parti

Agreement

Term Deposit AssignmentSpecific

Assignment

CFO Letter


Credit Innovations

• CFO Letter

Credit should be encouraged to call CFO:- arrange for letter - comfort factors, time lines,

and majority ownership changes

If cooperation is minimal, response is telling:- Results may not be predictable

- Profile of individual and company: ‘difficult’

- There is good likelihood of poor communications [and collections] in troubled times


“ I am still learning”

Michelangelo

in.risk.solutions.inc. “credit from the inside out” the whys, the wherefores, and a few...

Documents

fraud slide

bank slide

credit relative

solutions credit

credit innovations

battle slide

careful slide

professional credit