Case Studies

Rounding up Sphere Solutions’ cover
Sector: Recruitment | Turnover : £14.5 M

Sphere Solutions Limited is a recruitment specialist for the construction industry. Based in South Wales, the company has experienced strong growth since they were founded by James Hughes and James Parsons in 2005, and now have offices in Cardiff, Bristol, Plymouth and St Austell.

Sphere has utilised its invoice discounting facility to help support growth, and this facility included bad debt protection (BDP). However, following discussions with CBF, it became apparent that the BDP facility provided by the bank was not fully fit for purpose. Some credit limits were insufficient, and funding availability was restricted once an account fell overdue. A standalone credit insurance policy can provide a significantly greater level of coverage and flexibility – usually at a reduced cost – when compared to BDP.

BDP credit limits are inclusive of VAT, whereas credit insurance policies are VAT exclusive, so even matching BDP limits will provide an additional 20% cover. Sphere’s BDP included a £3,000 discretionary limit (DL; this allows a policyholder to justify cover themselves up to that amount, using trading experience or credit reports). However, with the vast majority of accounts well in excess of £3,000, the DL was of little or no benefit to Sphere.

Upon appointment by Sphere, CBF undertook a full and independent market review, and negotiated a tailor-made policy that offered major benefits over the existing BDP product. After detailed discussions, CBF put forward a credit insurance solution that included a £25,000 DL, providing cover for Sphere’s individual debtors below £25,000. For those customers with balances above £25,000, Sphere now use the credit insurer’s online portal to apply for formal credit limits. Upon inception of the policy, and despite a challenging sector, CBF obtained 100% credit limit coverage for Sphere’s larger (above £25k) customers.

Chris Williams, FD at Sphere Solutions explains: “At Sphere, we have achieved strong levels of growth over the last 10 years, and have ambitious plans for the future. It is important to us that future growth, plus existing business, is secured. We have an excellent relationship with our bankers, and they have fully endorsed the standalone credit insurance policy as part of our existing funding arrangements. With increased credit limit coverage and scope of cover, it allows us greater flexibility and access to funding. CBF’s knowledge of the insurance market and product offerings has been instrumental to us finding a solution that really fits our requirements at Sphere. They have been very responsive to our needs, in all our dealings to date, and we’re looking forward to building a long-term partnership.”

Not Such A Risky Business
Sector: Construction | Turnover : £11 M

An independent family owned building suppliers business with eight branches in Bristol, Stonehouse and Swindon. As suppliers to the construction industry, they are usually last in line for payment.

Finance Director, Mark explains: “A builder takes financial risk on every project, which means that the buck stops with them. As a supplier to the building industry, we are at the end of the line when it comes to payment, which can often be delayed if a builder suffers financial risk. Insurance keeps us both trading.”

For this company, Credit Insurance works very well. Their policy is focused on transactions above a lower limit, and a discretionary limit is applied to accounts where a close working relationship means they can trade at a level both the customer and Kellaway are comfortable with. Claims are based upon the highest paid balance under the highest value of discretionary limit in the preceding 12 months.

Mark explained that the benefits of credit insurance go beyond recouping losses: “The most obvious benefit is that we get money back when losses are experienced, but really it provides comfort and a degree of certainty. It also means that we are able to take some risks that we would normally shy away from, or can extend our credit limits.”

Of course it’s not just small builders who are at risk of financial difficulty. During the last year we have seen many big companies go into administration because they are at the end of the line in the payment chain. Rok and Connaught are two such companies.

“We can also benefit from this relationship in other ways. For example, we wanted to determine levels of insurance for certain customers and CBF were able to find out the realistic values were before we committed to an endorsed credit limit.”

“CBF are really responsive to our needs. Matt and his team are great, as are people like Katie and Faye. They’re really helpful and give us excellent guidance, picking up on things we may have missed and generally making sure the business is well protected”.

Specialist Insurance Brings Peace Of Mind
Sector: Construction | Turnover: £3.8M

Stephen Mallam is the accountant at one of the UK’s leading providers of thermal insulation to the building services industry. Working in the construction industry, he values the peace of mind that credit information provides, however he recommends it to all sectors.

“In the current economic climate it’s a very sensible thing to do. I would expect that anyone dealing in credit could have problems at the moment. It’s a wise thing to consider for any business, particularly as it gives you background information on any of your clients.”

The Group’s Credit Insurance policy is managed by CBF, which allows Stephen to focus on other areas of financial planning. It also supports him in the decision making process: “As part of this service we have the opportunity to gain insight into potential customers, which means we’ve got our finger on the pulse of the construction industry. We won’t just check on the company we deal with, we’ll also look at the people they’re working for as well.”

He continued: “If we go direct to the insurance company and ask for a credit limit of £20,000 on a new customer for example, and they refuse, we can then go to CBF to find out more information about the company, such as their trading and credit history, and look for information which may help to change the mind of the insurer.

Another key benefit of CBF’s insurance expertise is the specific nature of the insurance products and services they provide, as Stephen commented: “I’d had experience with factoring, but it’s not very relevant to the construction industry and it’s relatively expensive. Credit Insurance is much more appropriate for us, and the protection offered by the policy which CBF organised for us is ideally suited to our needs.”

He added: “CBF ask the questions that we wouldn’t know to ask, or wouldn’t want to ask the insurer directly. It’s also easier to develop more of a personal relationship with CBF as we feel we can ask them anything. They’ve done a really good job for us”.

Achieving Certainty In Uncertain Times
 Sector: Timber | Turnover: £18M

A specialist timber and forest products company, operates in a high value lower margin industry, which in turn means that the credit risk is high compared to margins. However, this hasn’t prevented the company from trading successfully since it was established in 1975. On the contrary, it has gone from strength to strength throughout the years, extending its range to include manufactured garden products, log cabins and timber homes.

According to Dave Spilling, Company Secretary and CFO, this development is greatly assisted thanks to the company’s proactive long-term approach to managing risk: “Credit Insurance has been part of our business model for nearly 30 years.  It remains very much a key element of our business strategy today, and we currently have a whole turnover policy which protects our sales ledger from bad debt” he said.

For many years the company sourced its Credit Insurance directly from the underwriter. However, the recent downturn prompted the company to look for independent advice, as Dave explained: “The recession was a big driver in our decision to use a broker as the credit insurance scene had changed so much. Having a specialist like CBF on our side means we have an extra layer of protection and advice to fortify our business model”.

“It’s very important now that we can bat our ideas and thoughts through a specialist, especially in these unprecedented times” he continued. “Plus we know that CBF are constantly monitoring the changing market in order to get us the best deals with the insurers. I would definitely recommend anyone to speak to CBF – not only are they professional, helpful and realistic, they add a really valuable dimension to our business”. 

Credit Under Control
Sector: Logistics | Turnover: £25.5M

How a company’s accounts are managed could mean the difference between business success and failure. Considering that 40% of the value of a typical company’s balance sheet is based on the sales ledger, extending credit to an unstable customer or trading on unfavourable terms could result in defaulted payments which choke cash flow. But what do well managed accounts look like? One company that has got their credit firmly under control, is a specialist business relocation firm based in London.

“Being in the service industry, there’s very little protection for us,” explains Tim Dykes, Finance Director. “Unlike a telecoms company, for example, which could cut a phone line if a client didn’t pay, we can’t take our `service back. We’ve got no leverage, so essentially no protection from non-payment.”

To combat this problem, the company has created a strong credit control system which is backed up by credit insurance and credit monitoring from independent brokers CBF. “CBF have really helped us to be more active with our Credit Insurance. Now we use it as an upfront credit control tool and also monitor potential and existing clients” Tim said.

“Not only does this help us make better decisions about extending credit, it also means we’re alerted practically immediately if there are any problems – if a new customer is not approved, this sets off alarm bells for us and we can investigate whether there are any suitable solutions” he continued.

Recently, CBF also managed to extend this company’s own credit limit. “The service has been excellent,” said Tim. “They’ve showed us how our credit rating looked to the outside world, and also what we could do to improve it. CBF is also looking at how our reports are presented and are monitoring our own credit status, so if something changes we can implement improvements straight away”.

Before working with CBF, the company’s Credit Insurance direct from the insurer. But for Tim, the objectivity and expertise which CBF offer makes all the difference: “The main benefit of using CBF is on the admin side. We’re not a credit insurance business – we’re using their expertise to ensure that we get the best deal and the right deal. We’re also quite a lean team so it makes sense to use someone who knows exactly what they’re doing”.

Insured Against the Unexpected
Sector: IT | Turnover: £2M

Even companies in strong and fast growing sectors can face serious non-payment problems. The UK’s No 1 independent IBM business partner with offices in Berkshire and Lancashire has had just these problems. After nearly four years of trading smoothly on open credit terms, one of their clients, Connaught Plc – an established FTSE 250 company which once had a market value of over £500m – went bust almost overnight leaving behind £220m of debt. Thankfully, the company was covered.

“As an IBM Business Partner, our client base tends to be made up of businesses of a substantial size. They’re the kind of companies which don’t normally go bust, but when they do it can be pretty painful,” said Peter West, Finance Director. “Connaught was a huge company employing over 10,000 people and investing hundreds of thousands of pounds into their IT systems. No-one expected them to go bust. But stuff like that does happen,” he continued.

After Connaught’s insolvency, CBF quickly organised the payment of a claim, over £50,000. “CBF were very good. They assisted us really well in the claims process, making it as easy as they could. I would be really surprised if we’d have got it any quicker without them” said Peter.

This was the first payment default and the first claim the company had ever had. But as Peter explains, it only takes one loss to cause disastrous consequences: “Some of the invoices we put through are worth hundreds of thousands of pounds, so one big loss could take us down. You just can’t have a situation where the business is at risk – it has to be insured against the unexpected”.

So is a fast claim payment the only reason to use CBF’s services? According to Peter, CBF offers a whole host of benefits: “We’ve always used a broker for credit insurance services. Originally though, we’d spoken to the underwriter directly and got a quote from them – but then we contacted CBF. They actually managed to get us a better price from the same underwriter!” he said. “As well as being professional and providing a decent service, we feel that CBF are on our side – they want to get us the best price and get claims paid for us”.

If you would like to find out how credit insurance can help your business, please contact our Account Management team.