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CPA Blog -: Just because you only trade with blue chips doesn't mean you don't have credit risk.

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4 years 3 weeks ago #2025 by j.salmon@cpa.co.uk
13th April 2017. By James Salmon, Director.
cpa.co.uk/deal-blue-chips/

But I only deal with blue chips....

Some business owners may feel they do not have a need for credit management services or have any credit risk. "I only deal with blue chips" they say. But the recent fall of Jaeger clothing chain into administration and the stark news from Japanese giant, Toshiba, should underline that Blue chip companies are equally capable of getting into trouble as SME's.

Toshiba has filed its delayed financial results, warning that the company's survival is at risk. "There are material events and conditions that raise substantial doubt about the company's ability to continue as a going concern," the company said in a statement. The electronics-to-construction giant reported a loss of 532bn yen (£3.8bn; $4.8bn) for April to December.

If you were supplying exclusively to Toshiba, you may have been under the misapprehension before this news broke that you had no risk of bad debts.

If you were a UK SME and you were supplying Jaeger before they went into administration, you might equally have been under that illusion.

However if you had been a member of the Credit Protection Association, then you would have known that long before the Jaeger clothing chain went into administration, we were already highlighting them as a major risk. We were giving Jaeger a credit score of zero and a recommended credit limit of zero while competitors were still considering them worthy of credit.

Just because you trade with blue chips, does not mean you have no risk.

Just ask people who in the past traded with Woolworths . Imagine if you had dealt with Enron. Did you know that over half the companies in the FTSE 100 in 1999 have since left the index? Only 49 survive the other 51 have either been bought, broken up, gone bust or declined in the years since.

A big name is no security. Donald Trump resigned as chairman of the board of directors of Trump Entertainment Resorts just before the company filed for bankruptcy to eliminate its $1.25 billion debt.

The list of supposed blue chips, large companies that pose no risk that have in fact disappeared into the black hole of insolvency is long and scary.

No matter, who you trade with it, it makes sense to regularly credit check your key customers and partners. CPA will monitor them for you and notify you of any changes. Having the Credit Protection Association at your side helps protect your bottom line in these difficult times.

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