When we talk about disaster events in business, the usual situations of fraud, cyber attacks or disruptions, or a physical event like a fire, flood, or something similar come to mind. Rarely do we think about how an economic event such as the sudden demise of a core customer, or a stock market collapse, or a major event such as the cause of the GFC. As we have noted lately a number of major and mid-sized companies have suddenly gone into administration. It would also be unreasonable to believe these insolvencies will not continue for some time.
We can of course plan and act to mitigate any negative problems for the gradual worsening of the economy due to economic conditions. However, many in management would have placed little thought on the consequences of a sudden event such as a core customer entering an insolvency administration, a physical event, or the loss of credit or accounts employees, or of another key employee within their own business.
When there is such a major problem with credit/accounts receivable employees, especially if they lack experience or expertise, the cost can be significant. For instance, it is just not the correct allocation of payments which is a problem, it is all the other duties which these employees are responsible for that are at risk. These costs include, but not limited to:
- a failure to make timely telephone and email contacts for the current and past due invoices,
- complete customer account reconciliations,
- ensure all credit claims are processed promptly,
- follow up insolvency administrations to protect assets,
- ensure terms of trade and other documentation are still valid,
- complete due diligence properly for new and existing customers,
- correctly open new accounts, etc.
There are actions which your business can take, even in this period, of finding the best qualified employees to reduce the costs of unforeseen factors such as the insolvency of a major customer, or the inability of a key employee to work.
The key factors to consider are:
- identifying whether you have sufficient employees available to complete duties as per your business’s KPI’s or existing daily needs,
- do you need to employ full-time employees for every position,
- do you have access to other people to complete duties on an ad hoc basis if required, for example in an emergency or sudden illness of an existing employee,
- are your existing work requirements up to date or as per the seven factors advised above,
- do you have sufficient professional employees to complete special cashflow and profit projects as required, etc.
In today’s business environment, there are many potential disasters which might occur without any warning. After all, that is the very nature of a disaster where there is often little warning. For instance, examples are the sudden demise of a core customer, or a stock market collapse, or a major event such as the cause of the GFC.
When we talk about disaster events in business, the usual situations of fraud, cyber attacks or disruptions, or a physical event like a fire, flood, or something similar come to mind. We can of course plan and act to mitigate any negative problems for the gradual worsening of the economy. Rarely however would management have thought on the consequences of an unexpected event such as the sudden advice of the insolvency of your customers. These situations are on the rise already in early 2024. There might also a physical event, or the loss of a credit or account employee, or of another key employee within your business.
In light of the economic and business environment today, it might be wise to create a disaster plan for your credit/accounts receivable functions sooner rather than later. After all, the current economic environment is projected to continue for some time into the future.