Latest Posts

Entrepreneurial energy is heating up
Posted 03 May 2012 by Mike Semanco  Add comment

Effective Use of Credit Insurance
Posted 19 April 2012 by Toby Dahm  Add comment

Customer Service Tips to Make Clients Love You
Posted 04 April 2012 by Candi Pavliscak  Add comment

Hennessey Capital's, Capital Conversations, is a blog, podcast, and social media portal
designed to provide entrepreneurs with. . .

  •        Tangible strategies and best practices to grow
        their business.
  •        Insights into financial trends and how they impact
        small businesses.
  •        Tips on accessing capital and managing cash flow.

Entrepreneurial energy is heating up

After several years of survival, many entrepreneurs have found new energy and are getting back to business.  Tired of putting out fires and sitting on their hands, business owners are eager to do something – grow and build their business. 

The last few years created a conservative environment.  How many times have we heard “Just wait until the other shoe drops.”  “What other shoe?”, you ask. Could it be commercial real estate, rising gas prices, the risks of working with companies overseas, the US printing presses being refilled with ink over and over agian? 

While we could sit on our hands and wait for the other shoe to drop, many business owners have put the gloves back on and are now on the offensive.  Balance sheets have been cleaned up so financing new opportunities is easier.  Some banks are even treating 2010 as a mulligan and not asking for a 2 year track record from businesses.  Acquisition opportunities are heating up, new product lines are being develop and entrepreneurs are figuring out ways to create new revenue streams for their business.  The auto industry is back in full force with limited summer shutdowns and the pent up demand in the marketplace is translating to positive results on 2012 first quarter income statements.

For entrepreneurs, it is all about the pursuit.  The pursuit for continuous improvement and pushing forward even when you are told you don’t have a chance.  This is why our team at Hennessey Capital gets excited when we finance growing companies.  You never know when that client who asks you to finance their very first invoice turns into a $7 million company two years later.  They chose not to sit on their hands.

 

Effective Use of Credit Insurance

By Toby Dahm, Senior Vice President, Hennessey Capital
All experienced business people are familiar with this nightmare scenario:  A company has a long history of serving a customer and that customer becomes a very large part of their business.  Without warning, the customer files for bankruptcy protection and suddenly the business is in a crisis.  Its major source of cash flow has dried up, and they do not know how they will pay their bills.

This does not have to be the scenario.  An under utilized business tool called credit risk insurance can insure that companies avoid this nightmare. At the most basic level, credit insurance is designed to protect companies from unexpected losses due to the insolvency or past due default by their insured customers.  It is a proactive management tool that can be designed in a number of ways to meet the risk management needs of a business.  If a customer becomes insolvent, the insurer bears the risk, with the exception of a deductible and co-pay which are a negotiated part of the insurance policy.  For clarification, credit insurance covers accounts generated after the policy begins, which is why it is a proactive tool.  A business cannot cover past accounts by grandfathering them in under a new insurance policy.

The obvious benefit for all who have witnessed a bad debt nightmare is that credit insurance provides catastrophic loss protection for large account concentrations that have the potential to bring a company down.  But, what if a receivable concentration is so high that an insurer will not cover it all?  There is a market known as excess insurance that can provide additional coverage on these accounts.  As a general rule, the excess carrier will provide a maximum limit equal to what the primary carrier is offering and their insured percentage mirrors what you have in your primary policy.  Beyond this most obvious benefit, there are three other key benefits to using credit insurance.

The first is that it allows for safe sales expansion.  As a company grows, competition often requires that it extend substantial credit to companies that it does not know well or which do not have much credit information available.  By insuring its accounts, a growing company can largely mitigate this risk.

The second additional benefit is that you gain professional credit decision support and information on your customers.  Your insurer is a business partner whose goal is to help you avoid credit losses before they happen and back you up when they do.   Credit insurers have data, resources and expertise that other businesses cannot come close to matching.

The third is that it can allow a business to obtain additional borrowing.  Whether it is covering a high concentration account, a slow paying account, or export sales, credit insurance can help you maximize the borrowing power that you have from your accounts receivable.

Credit insurance works best for companies that have high concentration accounts, have export sales, or are in industries that have a tendency to pay slowly.

We are all concerned about cost, so what is the cost of credit insurance and how can it be managed?  The cost of credit insurance varies, based upon a number of factors including:  The client’s historical loss experience, the risk in the portfolio, the spread of risk being provided, seasonality in the portfolio and risk retention on the client’s part.  As a “ballpark” estimate, the typical annual premium runs approximately 1/10th% to 4/10ths % of covered annual sales.  A couple of ways to mitigate this cost would be to carry a larger deductible or a higher percentage of co-pay.

A good resource to perform a cost/benefit analysis can be found on the website of Global Commercial Credit  www/gccrisk.com where they have a cost benefit calculator.  You enter certain data and it shows you the anticipated cost and also the financial benefit you can gain.

One alternative to credit insurance is the use of a put option.  This can be useful to cover the risk in a single account, particularly when the insurance market is reluctant to insure it.  This program involves a non-cancelable contract whereby the option seller agrees to buy qualifying accounts receivable at a pre-determined amount if your protected customer goes insolvent during the contract period.  The protection would be provided by a financially strong counterparty.  Put options can be arranged through credit insurance brokers.

Due to the very specialized nature of credit insurance, the use of a broker is highly recommended.  A good broker will know the major insurers and their appetites to secure certain risks and the nuances of their policies.  Their solid relationships with the insurers enable them to negotiate on your behalf using leverage that you simply do not have.

 

Customer Service Tips to Make Clients Love You

By Candi Pavliscak, Senior Vice President, Hennessey Capital

Customer service is always being discussed, from news stories and business books lauding those companies with the best customer service to companies competing with each other by debating which firm can truly provide better customer service than that other. There are a handful of companies that have quite simply become synonymous with outstanding customer service;  Nordstrom, Disney, Ritz-Carlton and Zappos.com to name a few. The real question is – how do you translate that level of customer service to a professional services firm, like a lending institution?  When you boil it down, the aforementioned customer service masters, are not that different than a professional service firm. Both are serving clients and both depend on their customers to be successful. Delivering outstanding customer service in a professional services setting isn’t quite as straightforward as having a great return policy or trying to spread Disney magic to your clients.  However, it is still about meeting your clients’ needs and some of the same principles apply.

Make it easy for your customers to do business with you. 

Take the time to explain what information they need to provide and what you expect of them in a way they will understand. This mean minimizing jargon! Nothing will turn current and potential customers off more than terms and phrases that are unfamiliar.

It is also vital to be clear about your processes and procedures so they know what to expect from you.  When it is necessary to implement a change or update a policy, explain in detail why the change is necessary and how it will affect them directly..  When both parties understand how things should work, the relationship will be mutually beneficial.  Then take it one step further and tell them when they do something right.  A lot of time is spent dealing with problems but how much time gets devoted to complimenting customers when they do something right?  If they are always timely with reporting and always follow your process, tell them you appreciate them and their business. Surprising clients with accolades – big and small – goes a long way in nurturing your relationship. 

Form a good relationship with your clients. 

No one wants to be just another transaction to your company or an ID number in your database.  How many people are involved in the client relationship?  I recommend having a relationship manager who knows the client, understands their business, wants and needs. This person should be the consistent point of contact from your organization. Dealing with the same person on a regular basis not only provides a personal touch but may also help establish a rapport so each party feels comfortable addressing issues, concerns and roadblocks. Clients don’t want to be bounced around a company seeking help. If the client has one point of contact, he or she always knows who to call.  

Be Responsive.

Your clients want to know they are getting your attention and that you are working to meet their needs.  It is important to give timely responses to questions and issues that may arise and not make the client call repeatedly to get an answer.  If you can’t give an immediate answer, give them a timeframe of when you will respond and make sure you follow through with that promise. BONUS: Clients will be shocked and amazed when you respond in a timely fashion. Responsiveness has become so rare in our culture, it is sure to be rewarded when applied.

Take time to listen to your clients. 

We all want to be heard. Clients want to know that when they speak, you listen. It seems simple, but the act of truly listening is a dying art form. In a world filled with constant distractions, the temptation to multi-task is more prevalent than ever.  You may not be able to grant every client request but you can be sure you are hearing their concerns.   Also although it should go without saying, be courteous and respectful when communicating with your customers.  I know it is not always easy especially when you are working with entrepreneurs that are passionate about their business, but a commitment to remain professional, respectful and calm will always serve you well.