Giving system builders credit
Insurers' faith in the PC assembly market may have been shaken, yet this situation can still be rectified. Laura Hailstone reports
Barely a week goes by without a rumour emerging that a system builder is going under – the larger the firm, the more frequently its name crops up. These rumours often begin when a company has had its credit lines reduced or pulled by a credit insurer. However, having credit reduced or cut is not necessarily the death knoll for a company, it is just a signal that something is amiss.
With ever-dwindling margins, life is hard enough for system builders so what can they do to restore credit insurers’ faith in them?
Grant Williams, senior risk manager at credit insurer Coface, said: “It is a sector that is very heavily insured because margins are so tight but we have no mandate to block or review cover in this sector. We remain cautious of numerous sectors, but system builders are not even in our top 10 of sectors that we’re seriously concerned about. Like a lot of sectors it is a challenge but not a crisis.”
Although this is good to hear, if a company is concerned it might be about to have its cover pulled, what can it do? According to Williams, the worst thing a system builder can do is bury its head in the sand.
“We get the majority of our information from Companies House, so system builders should make sure their accounts are filed on time and filed correctly because it can be one of the first things that triggers us to look at their cover,” he said.
“Also, if a system builder knows its suppliers are credit insured and they’re due to file some poor results, then it might be worth contacting us and explaining the figures. I’m not saying we’d ignore poor results, but if they can explain what has happened and what they’re doing about it, that helps us to make an informed decision.”
Communication is key in preventing things from spiralling out of control, however, many firms are reluctant to share information, said Williams.
“In all industries there are firms that are open and very happy to talk to us and provide information, but others are not – they’ll say they have no relationship with us,” he said.
Eddie Pacey, director of credit services, EMEA, at distributor Bell Micro, said: “There’s almost an in-built pride among many system builders that prevents them from opening up when they are experiencing difficulties. I can understand why these firms tend to keep quiet because they are scared what the credit insurer might say, but they are in a sector that is seen to be a tough market at the moment. They need to open up and talk to not just the insurers but to their principal distributors as well.
“A system builder should say: ‘I’ve had a difficult six months, the next six months are also going to be hard, but this is what I’m doing to address it – give me the support I need to get my business back on track’.”
Asked if credit insurers cutting cover can be blamed for a firm going under, Pacey said: “Rarely have I ever disagreed with an insurer’s decision to cut a company’s cover.”
Keith Warburton, chief executive of the Professional Computing Association, which represents some 500 system builders, said: “The credit insurers don’t want system builders to go out of business – it isn’t in their interest. Cutting cover is the insurers’ response to the risk that they see. When cover is cut there is usually a good reason for it.
“A system builder should address its business issues, then demonstrate to the insurers how it is addressing the issues. All too often a company does not seek professional advice until it is too late.”
Nitin Joshi, founder of advisory service Channel Money, said: “System builders play a valuable role in the channel. While we would all like management and financial information from builders, the reality of a fast-moving business is that it’s not always available as quickly as insurers would like. There needs to be better communication by system builders.”
However, Joshi was also critical of the insurers. “The distributors have sophisticated credit departments and sometimes this has not been matched by the credit insurers,” he said. “Often, it is a question of competing priorities; distributors would like to see their trading partners grow in a safe and risk-managed environment, while credit insurers are often pre-occupied with risk mitigation.”
Joshi claimed he knew of many businesses where insurance cover had never been granted yet distributors enjoyed a highly profitable relationship. “Many senior credit managers in distribution look well beyond balance sheets; if they only looked at financials, most channel businesses would be uninsurable.”
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Contacts:
Bell Micro (020) 8286 5000
ChannelMoney (020) 8906 7700
Coface (0870) 458 2246