Retail Accounting

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6 things to help an oil company manage its credit risk

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Manage RiskFor most oil companies, their Company Owned Dealer Operated (CODO) sites are some of their largest debtors. Depending on the operating model and procurement relationships, this amount can start to stack up if payments are a few days in arrears.

1.    Two way communication

It is critical in any relationship to have two way communications, and the operator-oil company relationship is no different. Speaking with the operator and understanding their situation can give early insight into any trouble that lay ahead.

2.    Performance information

Having regular, accurate, and comparative management information is a must in order to assess the true financial position of your operator network but also in spotting trends which could present risk in terms of credit.

Cloud accounting systems are well suited to monitoring site networks. For example CounterBooks (www.counterbooks.com) is an online retail accounting system providing full network reporting with net worth and liquidity of each operator and comparison from the previous periods. This data allows the oil company to identify those operators which are failing and thereby take remedial action.

Too many oil companies focus only on P&L metrics, in particular fuel volumes, when assessing the performance of an operator network. To minimise the number of failing operators it is important to view the overall performance of the business.

3.    Open Book Accounting

It is highly recommended that Open Book Accounting is specified by the oil company for the operator. This requires the operator to submit monthly or quarterly sets of accounts to the oil company and entitles the oil company to fully audit the operator’s accounts at any time.

4.    Process and procedures

The operator contract is a legal arrangement between two parties. There will be clauses outlining the obligations of each party. Nearly all operator contracts specify payment terms and if these are not met the contract can be terminated by the oil company.

With this in mind, the oil company should have a strict and well documented procedure dealing with any lack of payment should the matter proceed to the courts.

5.    Making the decision based on facts

Operators frequently ask for improved terms and financial support based on variations in trading conditions.

When an operator is requesting financial support, it should be reviewed with strict and vigorous financial due diligence – thereby analysis of the true financial position of the operator. You should review the decision based on management accounts and forecasts provided by the operator.

6.    Follow up and monitoring

Once a new operator has been appointed the oil company should regularly follow up and monitor the performance of the operator. This serves two purposes:
(i) The operator is provided with the support promised by the oil company in their contract.

(ii) The oil company ensures that the operator is complying with their contract and all fees due are being paid.

If you are interested in improving the performance and managing the risk of your dealer network more effectively, please visit www.CounterBooks.com for more information.

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Author: retailaccounting

CounterBooks is an online retail accounting management suite which is used by retailers across the world.

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