Date
22 October 2017
Omen Li had warned his friends and business contacts to avoid dealing with DSC after discovering that the retailer had been slapped with lawsuits by landlords over unpaid store rents. Photo: China Daily
Omen Li had warned his friends and business contacts to avoid dealing with DSC after discovering that the retailer had been slapped with lawsuits by landlords over unpaid store rents. Photo: China Daily

Why SMEs need debt consultants as ‘gatekeepers’

Two months before the sudden closure of DSC, Omen Li warned his friends and business contacts to be careful and avoid dealings with the troubled Hong Kong furniture and appliance chain.

Li is a professional debt collector. In addition to bad-debts recovery, Li also monitors counterparties for companies and alerts them to potential problems.

In the case of DSC, Li discovered that a number of landlords had filed lawsuits against the retailer over rental arrears before DSC’s problems became known to the public.

Court case and legal data monitoring is a very tedious process, but if a person keeps at it he can uncover cases of business troubles at the earliest.

“I spend about two hours checking the court websites every day,” Li says.

Calling it “body check”, Li runs a database of the counterparties of his clients against new court cases on a daily basis. If he finds a match, he will send a warning to the specific client.

With that information, Li’s clients can promptly take action to reduce the risks.

“Cutting back the credit line, or shortening the accounts receivable days are some of the immediate measures they can take,” Li says.

No matter how great sales are, if they cannot turn into cash flow, it is totally meaningless. Such “gatekeeping” practice is therefore crucial. It is especially true for SMEs as they don’t have deep pockets. One sizable default is enough to choke their cash flow and threaten their survival.

One of the most common woes is bad loans, but collection is hardly a problem limited to the finance sector. Factories, for instance, may fail to collect their accounts receivable; and trading firms may also face the same problems.

Li’s company, SME Debt Consult Services, primarily serves clients in the logistics and advertising sector, among others.

Li would also remind young entrepreneurs to always ask why a certain client is suddenly increasing the amount of businesses with them.

“It could well be a bad sign, as that particular client may have probably got suspended by previous suppliers for not settling the bills, and is switching to new suppliers for easy credit,” warns Li.

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RC

EJ Insight writer

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