It has never been an easy task to get paid on time but recently getting paid (not necessarily on time) for the goods or services supplied is becoming increasingly difficult.

Agreed credit terms are not only being abused and dishonoured but also being inconceivably stretched. Suppliers from certain industries are getting paid 180 - 210 days later than the agreed credit terms to the detriment of sound commercial cash flow, which sometimes make it unsustainable for the operations of businesses.

I do not have a crystal ball but in my humble opinion this commercial scenario will get worse after this summer if the tourist industry in Malta is affected by the international credit crunch.

From the data that the Malta Association of Credit Management compiles on a daily basis from various external sources and from its members who are the major players in the local business community, it shows that overdue accounts have increased both in terms of the number of defaults, as well as in terms of money. MACM data also shows that, although the banks are being more vigilant, dishonoured cheques have also increased during the past few months. Businesses selling on credit should therefore be more careful.

Being faced with this economic and financial turmoil, we cannot just sit back and wait. We should find ways to be proactive and innovative. We should strive to gain and sustain competitive advantage in our market more than ever before.

We should be competitive not only to sell our products and services but also to collect our money. We should keep in mind that we are also competing with other suppliers to get paid - hopefully on time!

We tend to forget that our customers have other suppliers who are granting them credit, just the same as we are doing with them, and these suppliers are also striving to get paid from our same customers. Therefore, we will only get paid if our customers prefer us rather than the other suppliers - and this is our challenge - to try and find the best strategies or tactics that make our customers pay us rather than our competitors.

The knack to getting paid is twofold:

Firstly, businesses should be more customer-focused. To start with, we should treat our colleagues as our "internal customers" in order to be able to provide better customer service and build long-term relationship with our clients. We can never offer high quality customer service if internal conflicts within the business organisation prevail. All employees, irrespective of the level of authority, should work as one team having one objective to achieve, that of meeting customers' needs and when possible exceeding their expectations.

We should create and sustain synergy between the credit function and other departments, especially the sales and the distribution departments. The business organisation is like the human body - every part of the body is critically important, as it has its specific function and lacking that specific function, the body would be considered as handicapped.

Therefore, we should understand the role of the different departments and business functions while respecting the importance of each. I cannot imagine a successful business organisation without an effective sales team and an efficient distribution department - likewise, I cannot envisage a profitable and sustainable business organisation without a proactive credit management function.

Therefore, we should identify the threats and convert them into opportunities. We should change the processes and procedures that we have been deploying within our businesses for years.

We should move forward, and to do so, we should forget what we used to do in the past, as inherited practices may well be ineffective in today's turbulent times. Today's challenges require us to be more innovative by differentiating our products and the way we provide and deliver our products to our customers.

Secondly, businesses cannot sell on credit blindly. The market consists of different types of customers. Segmenting the market is fundamental, as businesses would be able to identify the honest customers from the rest and focus their resources on the profitable segments of the market.

Once the honest and bona fide customers are identified, there should not be any harm to invest in customers by granting them credit. But businesses require up-to-date and reliable information both to segment the market and to target the profitable segments and niches.

Businesses need pertinent information to base their credit decisions on. They need information to identify the potential client requesting credit; to analyse the credit worthiness and the real value of the potential client; to monitor the existing accounts on a daily basis; and to take proactive actions in order to increase profitable sales, secure sound cash flow, while maintaining long-term customer relationship.

MACM provides accurate and relevant credit-related data to its members in order to differentiate themselves from the rest and stand out of the competition both when it comes to selling to the honest clients, as well as when it comes to getting paid.

Members of MACM have access to databases and credit tools which help Maltese businesses gain and sustain the required competitive advantage. Thanks to the members, who actively reciprocate with pertinent credit-related data, early warning signs would be established at an early stage. These warning signs may well include:

• Dishonouring cheques drawn by customer or credit applicants.
• Customers changing their banker.
• Changes in the payment pattern of the customers or credit applicants.
• History of late paying.
• Low stock levels.
• Overtrading.
• Lack of filing of accounts as required by the Registrar of Companies, if applicable.
• Rumours in the industry.

MACM members can also make use of innovative and customer-focused tools to analyse and monitor the credit worthiness of their existing customers and that of their credit applicants, as well as to measure the performance of their own credit function. These tools are available free of charge to all MACM members through its website: www.macm.org.mt.

Through its affiliations and relationships with local and international organisations, MACM also informs the local business community of what is going on in the Maltese and overseas markets. It continuously provides informative literature and publications by which local creditors would be able to take the appropriate actions and improve their credit processes and procedures.

Thanks to the agreement reached with Graydon International, a reputable credit rating agency, local businesses can now request comprehensive credit reports on any company from all over the world at competitive prices from MACM.

The credit function is becoming a more integrated business unit within the business organisation. It determines the level of cash flow of the organisation, and to an extent, the profitability of the whole business organisation.

Credit decisions will be taken more wisely and professionally when the internal and external business environmental factors are taken into consideration. The only way to make effective, profitable and competitive credit decisions, as well as to reduce risks associated with credit is by investing in long-term customer relationship and in a reliable credit management information system, as the one provided by MACM to its members.

The author is director general of the Malta Association of Credit Management.

jbusuttil@macm.org.mt