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How to Conduct Business in Times of Financial Crises?
Thread poster: Roomy Naqvy

Roomy Naqvy  Identity Verified
India
Local time: 03:40
English to Hindi
+ ...
Oct 9, 2008

Suppose, I do a job for a company in the US and they have a bank account in a bank and that bank goes bust, the US govt/FDIC insures accounts till $100,000 but my translation company has $500,000 in it accounts. So, it has lost $400,000. It is likely to default on my payment. I wouldn't know till it defaults because I'm working on Net 30 or Net 45... so, what should I do?

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Ralf Lemster  Identity Verified
Germany
Local time: 00:10
English to German
+ ...
Demand (partial) payment in advance Oct 9, 2008

Hi Roomy,
The only real answer is to shorten average payment terms, ideally through partial payment in advance. I'm fully aware of the competitive issues - I lost a major (direct) client because I demanded to be paid before delivery, but they were on the brink of insolvency.

Anything beyond 30 days exposes you to risks which are virtually unmanageable.

Kind regards,
Ralf


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RichardDeegan
Local time: 17:10
Spanish to English
Why wait? Oct 9, 2008

Gee, if I were working with a translation company that had $ 500,000 in accounts in just one bank, I would not be giving them net 45. Why can't they pay in 10-15 days?

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xxxmediamatrix
Local time: 18:10
Spanish to English
+ ...
If you can't stand the heat ... Oct 9, 2008

Roomy Naqvy wrote:

Suppose, I do a job for a company in the US and they have a bank account in a bank and that bank goes bust, the US govt/FDIC insures accounts till $100,000 but my translation company has $500,000 in it accounts. So, it has lost $400,000. It is likely to default on my payment. I wouldn't know till it defaults because I'm working on Net 30 or Net 45... so, what should I do?


... get out of the kitchen!

In other words, if you want to the enjoy/exploit the benefits of working in the global economy when everything's hunky-dory then you must also be prepared to assume the risks when things start going awry.

MediaMatrix


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Ralf Lemster  Identity Verified
Germany
Local time: 00:10
English to German
+ ...
To manage risks, you need to be able to influence them Oct 9, 2008

MediaMatrix,
I beg to differ: in my view, the business purpose of a language services provider is to make money from such services, as opposed to lending money. Many freelancers act as uncollateralised lenders, financing undercapitalised intermediaries.


In other words, if you want to the enjoy/exploit the benefits of working in the global economy when everything's hunky-dory then you must also be prepared to assume the risks when things start going awry.

My preferred approach is to manage risk, and to take exposure only to the extent that I feel comfortable with. This may involve having to turn down business, as the excess return (over the risk-free rate of interest) available from clients demanding payment terms beyond 30 days is often nil. In other words, there is no return for the additional risk taken.

Best regards,
Ralf


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Kevin Fulton
United States
Local time: 18:10
German to English
Insolvency (bankruptcy) is a greater worry Oct 9, 2008

I wouldn't worry too much about a bank failure -- right now. Since credit has largely dried up in the US, some companies are having a hard time paying vendors and meeting payrolls, as they often rely on revolving credit accounts with their financial institutions to tide them over while waiting for payment from their customers. In the US (and other places, as well, I assume) unsecured creditors such as translators have no real protection in the event of bankruptcy.

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xxxmediamatrix
Local time: 18:10
Spanish to English
+ ...
Facts of life. Oct 9, 2008

Ralf Lemster wrote (with my bold):
My preferred approach is to manage risk, and to take exposure only to the extent that I feel comfortable with.


That (take exposure...) is exactly my point

As for 'managing the risk', I see little sign that those whose primary occupation is financial risk management have been overly proficient in recent months. If GWB, the IMF, the WB, the EU big 4, G7 and a dozen other whiz-kids can't influence the risks significantly and with any degree of assuredness, what likelihood is there of anyone here doing better?

There are situations where risk is not manageable at all - other than by a strict policy of abstention.

That said, when working in the global economy there's some scope for accepting extra risk in times such as the present if, as is the case here in Chile, for example, the local exchange rate vis a via the USD and the EUR is swinging favourably (e.g. the Chilean peso has shifted as much as 20% against the USD in the past 3 days...).

MediaMatrix


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Ralf Lemster  Identity Verified
Germany
Local time: 00:10
English to German
+ ...
We can do better Oct 9, 2008

Hi again,

As for 'managing the risk', I see little sign that those whose primary occupation is financial risk management have been overly proficient in recent months.

Agreed.

If GWB, the IMF, the WB, the EU big 4, G7 and a dozen other whiz-kids can't influence the risks significantly and with any degree of assuredness, what likelihood is there of anyone here doing better?

Not that bad at all, I believe.

This may involve not taking any risks at all, but I agree that this would not be a viable approach over a longer period of time. Having said that, it's essential to be aware of your risk exposure - in the various seminars I have held on risk management for LSPs, there were always freelancers who were unaware that delivering work without concurrent payment (or payment in advance) is, in fact, equivalent to lending money.

Best regards,
Ralf


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xxxmediamatrix
Local time: 18:10
Spanish to English
+ ...
Absolutely right. Oct 9, 2008

Ralf Lemster wrote:
...
it's essential to be aware of your risk exposure - in the various seminars I have held on risk management for LSPs, there were always freelancers who were unaware that delivering work without concurrent payment (or payment in advance) is, in fact, equivalent to lending money...


Yes - and of course that's true regardless of the state of world financial markets.

In 'normal' circumstances long payment terms are risky. The way things are today, 45 days net is asking for trouble - and I don't for a moment doubt that some of our colleagues are going to get caught out.

MediaMatrix


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Solfrid Lokslid  Identity Verified
United States
Local time: 18:10
Member (2006)
English to Norwegian
+ ...
FDIC insures accounts up to $250,000 as of last Friday Oct 10, 2008

Hey everybody,

This might not have such a big influence on this discussion, but I just thought I would make everybody aware of that the US Congress passed a bill last Friday that temporarily increases the FDIC insurance to $250,000. This at least will give some more leeway in the scenario the original poster painted.

Solfrid


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Tomás Cano Binder, CT  Identity Verified
Spain
Local time: 00:10
Member (2005)
English to Spanish
+ ...
How long will it take to fix if it ever happens? Oct 10, 2008

Solfrid Lokslid wrote:
FDIC insures accounts up to $250,000 as of last Friday


Yes, similar situation in Spain, where bank deposits are expected to be covered up to Eur 100,000 I think. In Spain you never know whether the coverage starts when the president smiles to the press and says such things or what. I still haven't seen such a measure published officially.

But, let's suppose a bank goes bankrupt and Roomy's customer has the money in it and let's suppose the customer only has $250,000, all covered by the Government.

How long will it take the Government to take action, start accepting claims from bank account owners, start making payments to them, etc. etc. At a very minimum, 3-4 months I reckon. So even if the customer operates in good faith and gives Roomy's invoices some priority, 4-5 months could easily ellapse until Roomy sees his money.


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Tomás Cano Binder, CT  Identity Verified
Spain
Local time: 00:10
Member (2005)
English to Spanish
+ ...
Act reasonably Oct 10, 2008

Roomy Naqvy wrote:
Suppose, I do a job for a company in the US and they have a bank account in a bank and that bank goes bust, the US govt/FDIC insures accounts till $100,000 but my translation company has $500,000 in it accounts. So, it has lost $400,000. It is likely to default on my payment. I wouldn't know till it defaults because I'm working on Net 30 or Net 45... so, what should I do?


Well, my only advice is the same advice I'd give you in a normal economic period: if the project takes very long and keeps you from working for other customers and diversify, you might want to ask for partial deliveries and partial payments along time. This is normal business, and not only in times of crisis. Your customer cannot expect that you cover your expenses for 3 months (or 10 months, for what matter) without seeing a dollar.

I think that we should hold our big expense or purchase decisions until we have real money in our account (or a reasonable expectation that we will be paid on time). But don't we do that always?

Let's not panic folks! We have seen other crises in our lifetime, our parents had them too, and have always had a piece of bread in the kitchen! Let's continue business as usual, let's be confident in our abilities and the abilities of our customers, and this will soon be over.


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Heinrich Pesch  Identity Verified
Finland
Local time: 01:10
Member (2003)
Finnish to German
+ ...
Business as usual is the ownly way out Oct 10, 2008

Economy can only function if we all trust each other. Factory workers must trust their employer that he will pay them at the end of the month, hairdressers must trust that the customer will put the money on the counter when the job is done etc.
If we all stop working because of fear not to get paid nothing will get done. Even if a customer would pay me in advance I still have to trust that my bank will exist next week. As we cannot eat dollars or euros the only truly safe payment would be food and fuel. For each page of text 10 kilos pasta or rice or gasoline. Or cigarettes? It does not work, so stop worrying.

Cheers
Heinrich


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Williamson  Identity Verified
United Kingdom
Local time: 23:10
Flemish to English
+ ...
Some can't resist the temptation. Oct 10, 2008

Yet some (based in Ireland) could not resist to post "crisis offers". Medical translation at 0.10$ (0.065 euros) with the usual reduction for CATs and "best rate". 22 bids.
The Irish government warrants all deposits on bank-accounts in Ireland.


[Edited at 2008-10-10 06:56]


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Tomás Cano Binder, CT  Identity Verified
Spain
Local time: 00:10
Member (2005)
English to Spanish
+ ...
Not a crisis - just lack of confidence Oct 10, 2008

Heinrich Pesch wrote:
Economy can only function if we all trust each other.


Absolutely. These days I think that this "crisis" is just a big wave of lack of confidence in the way our society works, in the values that made free societies strong (freedom, democracy, opportunity, trust, legal security).

I like our society. It is not perfect, but it allows everyone a degree of opportunity, safety and freedom never achieved before the 20th century. Let's keep up with it! Let's trust the way we are!

Let's keep doing every job to the best of our abilities, let's pay our duties on time, let's honour our commitments. We cannot allow banks and media to convince us that our society is a mess. It is not!!


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