In this blog Paul Evans ACII, our risk management expert, looks at a new product that helps professional practices reduce the credit risk and financial stress on their practice, with the added benefit of improved customer retention and new business wins.

Improving cashflow and managing credit risk are two key tools to strengthen financial resilience and create opportunity for growth. Fee Solutions is a new breed of product that allows Professional Practices to receive 100% of their invoiced funds within 14 days.

The key issues:
Professional Practices, just like any business undertake work for which they do not receive payment until after this work is completed. For large undertakings, the invoices will be substantial which often causes delays because your client struggles to find the immediate cash required to pay your bills. This causes your firm a cashflow problem. Staff who have undertaken the work still require salaries paid, office costs still need meeting, but your client might be holding back a payment.

This delayed invoice payment will, at some point, become a credit risk. Your firm is essentially giving your client a free credit facility. If your client cannot meet the bill because of circumstances affecting their own finances, this credit risk may turn into a bad debt with further ramifications for your firm.

Traditional credit risk management methods:

One of the main problems with traditional Credit Risk management is that there is no systematic approach within the Professional Firm to managing this risk. This leads to problems caused by delays in identifying a risk, where early intervention could have secured a favourable outcome. It also leads to inconsistent results so that Partners cannot accurately plan for growth or budget for bad debt because they do not have control over the firm’s cashflows.

Creeping debt:
One of the other problems we often see in firms without systematic Credit Risk Management is a gradual accumulation of debt from a single source. Rather than being able to put a stop on further work until debt is cleared, invoices keep being produced until someone realises that the firm is over exposed to a single poorly paying customer. This can lead to a reactionary effort to call in the debts and may even force the customer into financial problems that result in a serious bad debt scenario.

Existing solutions are not fit for purpose:

Go to your Bank and ask for help managing your credit risk and they will happily sell you an invoice discounting or factoring product. Great for the bank as your firm pays between 5% and 15% of your invoiced fees to the bank and you still have the credit risk as the bank has Charges over your assets in case a client does not pay!

If you look to protect this credit risk then the bank rolls out the Credit Insurance product, which is often inflexible and takes your whole book of customers, not just those that really expose your firm, at a large insurance premium cost.

Is there an alternative Cashflow & Credit Risk Management tool for Professional Practices?

Yes there is. We suggest our professional clients take a look at Fee Solutions. This innovative financial tool helps Professional Practices to receive 100% of their invoices within 14 days while outsourcing the credit risk management to a dedicated team with a systematic approach to collecting the invoiced fees.

The way Fee Solutions works is by extending a simple credit facility to your customers, allowing invoices to be paid over a monthly instalment plan that suits their budget. The costs are borne by your customer, after all business owners understand credit is not free, but the competitive rates charged mean that your Practice is not disadvantaged in the competitive professional services environment in which we all work.

Helping Professions grow:
Coming full circle in our Risk Management analysis, this tool provides certainty over cashflow which gives your Professional Practice the ability to budget for growth plans and take advantage of opportunities to secure new business in your sector.

We also believe the Fee Solutions Credit Facility extended to your clients can be a demonstrated USP for your Professional practice, helping to secure client loyalty and win new business.

TAKE A LOOK AT THE FULL FEE SOLUTIONS PRODUCT PAGE.

Contact us on : 0845 4310 448 for further assistance or email us at  feesolutions@butlerevans.co.uk