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Print companies at risk as credit insurers cut limits, warns ICSM
Credit insurance companies are cutting credit limits, threatening the financial stability of printers as the economic climate worsens, experts have warned.
Suppliers are increasingly being forced into altering payment terms for printers, with the paper industry among the most exposed to the changing environment for credit risk.
Jim Tunstall, managing director of paper merchant Connect 2 Paper, said: Credit insurers are becoming risk-averse. The effect of this will be far-reaching and could have dire consequences for small and medium companies. Both printers and merchants, which rely on credit insurance to support business funding through their sales ledgers are at risk.
The move follows several administrations in the print industry, which left insurers footing the bill for millions of pounds of unpaid debt and, according to credit- checking agency ICSM managing director Ian Carrotte, left many companies exposed.
He warned: Stronger companies will survive the current financial crisis and weaker ones will fail.
He said that printers on the receiving end of a credit limit reduction could see suppliers insisting upon pro forma sales, which could lead to cash flow pressures.
As well as having to pay back-dated bills, printers may find themselves having to pay up-front for goods – essentially forcing a double payment in one month. For some companies with very restricted cash flow, an event like this could be terminal.
However, Carrotte added that the insurance companies should not be blamed for putting print firms at risk, because they are simply coveringtheir own business. He added the responsibility for maintaining a company’s credit rating falls with the company itself.
James Bowker, account director and leader for the paper sector at credit insurers Aon, said printers need to talk to their suppliers in order to keep credit levels at as high a level as possible.
He said: There are things printers can do that make it better for themselves. Responding to requests for information from insurers can help, a non response is one of the biggest causes of credit limits being curtailed.
CREDIT FACTFILE
• Economic climate has led to reduced risk appetite
• Rise in print insolvencies has cost insurers millions of pounds
• Lack of accurate financial information has affected decision making
• Credit levels affected by poor communication with suppliers
Carrotte: cash flow pressures
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Comments
Jon Fennell - 05 September 2008
Sounds like a big wake up call for all.
As a trade, we are going have to risk upsetting clients and play the same game as the mills and merchants.
We can't carry on being the kicking post at our own marginal cost. Its going to have to be same game for all, with clients not being given luxury of 90 days terms and free finance. Customers terms with printers should match the terms of the printer with its own suppliers.
Paper companies have got their act together, its time printers did the same and played the one rule for all philosophy and for once be united on this where clients are concerned.
Print has to stop the leverage from customers of 'if you won't they will' which is the common threat.
If a client is worth their salt they shouldn't have a problem, thier finance problems after all are the same as ours.
Its time to test customer loyalty, and play the same way as paper companies, especially with CI and payments.
Mick Hart - 05 September 2008
I agree, it is time fo a wake up call, and printers should pass on terms imposed upon them to clients, who I am sure will have nothing to say about it at all!
And pigs might fly - we are not selling oil, we are trying to sell a service, and if printers wish to survive we need to retain an element of contol over our suppliers as well as keep our customers, albeit on more sensible terms than maybe we have in the past. Remember our customers do have other alternatives to turn to.
the nugget - 05 September 2008
Isn't it ironic that due to decreasing credit limits to companies to protect their business, they are in fact increasing the amount they are forking out when businesses fail! They are making business failures in this trade a self fulfilling prophecy with their actions.
Printers will end up shying away from accepting big jobs, because they will be fearful of using up their reduced credit limit on them!
the nugget - 05 September 2008
P.S. Agree with your sentiments Jon, but how many years have printers been saying this about their clients\(ie. passing on costs and getting tough on credit terms)? The printer has always blinked first in this situation, and there is nothing unfortunately to suggest that this will change in the short or long term.
Jon Fennell - 05 September 2008
Times are changing, print has been its own worst enemy for years and its never liked the word No.
We work with clients who also have poor credit ratings and yes we do ask them for cash up front, if they are honest about there own business they do exactly what printers do and pay up, they like us are in business and also are aware of rising prices. Unlike printers however most realise that unless the pass on increase they will have a slow lingering death \(sounds familar).
As printers, we don't like merchant and mills putting up the price but do pay it. All printers are in the same boat, perhaps the ones that want to cut there own throat should do it, from the sound of it they won't get paper from a bad credit reference anyway.
I think it will change, with the amount of business going to the wall, capacity is falling and competition disappearing this has to be good for the ones wise enough to survive.
Don't think it will remain as a buyers market much longer, and with the weakening of sterling against the euro more work is staying and coming into the UK.
Although this benefits web more, its effects will help some sheetfed houses which takes away more capacity. The more capacity V work balances the better the chance of costs being passed on.
Lets keep the fingers crossed
The Mighty wind - 06 September 2008
Jon Fennel writes:
"As printers, we don't like merchant and mills putting up the price but do pay it. All printers are in the same boat, perhaps the ones that want to cut there own throat should do it, from the sound of it they won't get paper from a bad credit reference anyway. I think it will change, with the amount of business going to the wall, capacity is falling and competition disappearing this has to be good for the ones wise enough to survive. "
The future in a nutshell, the trade is changing rapidly and i believe the buyer will start feeling the heat soon.
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