As we approach the holiday season, and with economic uncertainty in the air, it is important that agents do not let the recent sustained good run have diluted their awareness of credit control.
The more experienced are familiar with the clamp effect of an easing of market conditions; headcount and salaries have risen sharply, but deals may take longer to materialize. If prices and rents go down – no sign of that yet – then your average fees go down.
In a slowing market, agents can be vulnerable when incurring marketing costs for customers. Individually, they might not seem like a lot, but if each property you manage takes longer to sell, your overhead can spiral out of control.
The ‘bite in the tail’ is that if properties take longer to sell, clients tend to become slower in paying their bills.
During the last recession, many agents wrote off large sums that customers were unable or unwilling to pay – several hundred thousand dollars for some of the big brands, I suspect.
Agents are now more cautious when accepting instructions and generally seek to have initial marketing expenses paid up front.
The biggest risk area is where agents and other professionals manage development projects. The rewards can be significant, due to the scale of the business, but developments devour marketing costs and design time.
If development is not going well and the developer is under financial pressure, professionals may be “sucked in” to continue in an effort to see the project come to fruition, but sometimes only increasing their losses.
Agents managing mixed-use schemes should be careful when different divisions are involved, for example, marketing apartments, offices and retail.
People in departments won’t be aware of spending in other areas, but the overall exposure of the business to the customer can be enormous.
A key to avoiding problems and reducing risk is a strong accounting function, which keeps a holistic eye on aging debt across the business.
Make sure every junior trader is educated on the importance of credit checking, so that it becomes a good habit.
Whatever procedures you put in place, it is important that you “hold on”, even at the risk of losing lucrative instructions.
The client wouldn’t talk to you if they didn’t want you on their team. With interest rates still very low, if the customer does not pay his bills quickly, it may be better to do without.
With experience comes the ability to spot the delay tactics of customers who are in trouble and not paying the money owed.
The most dangerous of these is the customer who, while unable to pay you, can convince you that you will be paid at some point when something else is happening.
The tricky part is that this client actually believes this scenario will work, even if the situation is hopeless.
In most cases where an agent does not receive their fees, their weak point will be the lack of detailed written terms of engagement with the client. Remember that whether or not you “introduced” the buyer is usually the legal test on which your fees are based.
The holiday season is a great excuse not to pay bills, so think about tightening your credit checks now.
You are an agent, not a bank.