As we get closer to the holiday season, and with economic uncertainty in the air, it is important that agents do not allow the recent sustained good run to reduce their awareness of credit controls.
He will learn about the pincer effect of softening in even the most experienced market conditions; There has been a strong increase in workforce and salaries, yet deals may take longer to complete. If prices and rents drop — no sign of it yet — your average fee goes down.
In a slow market, agents can be vulnerable while incurring marketing costs for customers. Individually, they may not seem like much, but if each asset you’re handling is taking longer to sell, your overhead could spiral out of control.
The “sting in the tail” is that if properties are taking longer to sell, customers tend to be slower to pay their bills.
In the last recession, many agents wrote off large amounts of money that customers were unable or unwilling to pay – several hundred thousand euros for some big brands, I expect.
Agents are now more cautious when taking instructions and usually look to pay the initial marketing expense upfront.
The biggest risk area is where agents and other professionals are handling development plans. The rewards can be great because of the scale of the business, but the development eats up marketing costs and design time.
If development isn’t going well, and the developer comes under financial pressure, professionals can be “sucked up” in an effort to make the plan look good, but sometimes only magnify their losses.
Agents handling mixed use plans need to be careful where different divisions are involved, for example, marketing apartments, offices and retailing.
Individuals in departments may not have knowledge of expenditures in other areas, but the firm’s overall exposure to the client may be very high.
The key to avoiding problems and minimizing risk is a strong accounting function, which keeps a holistic view of the aging of debt across the company.
Make sure each junior negotiator is trained on the importance of credit control, so that it becomes a good habit.
Whatever procedures you do, it’s important that you “stick to your guns” even at the risk of missing flashy instructions.
Customers wouldn’t be talking to you if they didn’t want you on their team. Interest rates are still so low, if the customer won’t pay their bills right away, you may be better off without them.
With experience, comes the ability to detect delaying tactics by customers who are in trouble and not paying their dues.
The most dangerous of these is the customer who, while unable to pay you, can assure you that you will be paid at a designated point in case something else happens.
The tricky part is that this client actually believes this scenario is going to work, even if the situation is hopeless.
In most cases where an agent is not paid their fee, their weak point will be the lack of detailed written terms of engagement with the customer. Remember that whether or not you have “offered” the buyer is usually the legal test of where your fees are due.
The holiday season is a good excuse for not paying the bills, so consider tightening your credit controls now.
You are an agent, not a bank.