CREDIT-VET_REVIEW_Issues_response_131009

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					                                           Consolidated issues for 2009 BTW Credit Vet Review

Issue   CP(s        Issue         Docume                   Summary                                 BT initial comments – 07/10/09
         )*                         nt/
 No.               Name/                                    of Issue
                                  Clause
                 Descriptor
                                  number
 1.     VM,    General – lack                                                            BT has met requirement for transparency by
        GC,    of transparency                                                           specifying that it factors in the financial strength, risk
        CW                                                                               rating, delinquency score, spend, payment record.
                                                                                         “ an affected operator should be able to understand
                                                                                         how its credit limit has been set. The information to
                                                                                         be provided by BT should therefore set out the
                                                                                         criteria that has been taken into account in this
                                                                                         regard, including whether any information is from an
                                                                                         external or internal source…………the level of
                                                                                         disclosure should be of sufficient detail to
                                                                                         understand the criteria that BT has taken into
                                                                                         account.” (Oftel re SIA February 2003).
 2.     VM,    General – level                                                           An infallible formula is not practicable or realistic –
        GC,    of BT discretion                                                          appropriate expert discretion is necessary and
        CW                                                                               appropriate.
                                                                                         “It is not possible…to specify in all cases how much
                                                                                         weight should be attributed to late payment or
                                                                                         outline the relationship between payment history
                                                                                         and a credit vetting agency report in determining to
                                                                                         what extent an operator constitutes a financial risk.
                                                                                         The Director considers that both payment history
                                                                                         and a credit vetting agency report are appropriate
                                                                                         sources of information to be considered when
                                                                                         identifying whether an operator is a credit risk. An
                                                                                         appropriate balance will need to be struck between
                                                                                         them on a case-by-case basis” and then referred to



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CREDIT VET REVIEW Issues summary 131009
                                                                                                 the need for “appropriate third party dispute
                                                                                                 resolution measures” (Oftel re VF July 2003)
 3.    C&W    General         -              Proposals disproportionate to larger [more         A credit vet activity caters for both new and
       +      Proportionality                 established] CPs – need a different process to     established CPs, and the mechanism takes
                                              be implemented on an exceptional basis             appropriate account of established operators as it is
                                                                                                 heavily weighted towards a payment record (and
                                                                                                 values). And obviously as we see from TV and
                                                                                                 newspapers established companies are not immune
                                                                                                 from failure.
                                                                                                 It is necessary to recognise the difference between
                                                                                                 the carrying out of a credit vetting exercise, from the
                                                                                                 need exceptionally to take action as a result of the
                                                                                                 exercise.

                                             Also proportionality is questionable:

                                              1. Broad view on credit worthiness.
                                              2. General right for BT to take risk mitigation
                                                   action in relation to:                        A supplier does not need a reason to credit vet a
                                                   - new product and services requirements       customer other than they are a (potential) customer
                                                   - increase in demand for existing             and a potential liability.       By checking on this
                                                        products and services                    regularly we can minimise our exposure and take
                                                   - novation                                    action quickly if the situation warrants it.
                                               not just related to payment default. It is
                                              somewhat unclear whether any of the above
                                              constitute valid reasons for vetting a customer,
                                              i.e. do they create a risk over and beyond the
                                              normal risk of doing business for BT?

                                             Also question weighing of BT rating v. credit
                                              agency rating (e.g. D&B) and recommended
                                              action.                                            BT’s rating is almost invariably higher than D&B’s

 4.    C&W    General        –        Suggest that Credit Vet activity amounts to “double        Clearly BT has a responsibility to look to minimise




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CREDIT VET REVIEW Issues summary 131009
       +      “double                     dipping” because of the bad debt element included         bad debt – it would be totally unacceptable for BT to
              dipping”                    in product pricing                                        deliberately allow bad debt to accumulate, and then
                                                                                                    look to recover from regulated charges for a
                                                                                                    subsequent period. Additionally, this would
                                                                                                    encourage fraud and could lead to Directors of BT
                                                                                                    being in breach of their Fiduciary Duty under the
                                                                                                    Companies Act. All Company Directors have this
                                                                                                    duty of care.
                                                                                                    “BT already has some bad debt allowance within its
                                                                                                    PPP and other interconnect charges. However, the
                                                                                                    Director believes that BT should, as far as possible,
                                                                                                    take steps to avoid bad debt occurring in the first
                                                                                                    place, as long as the mechanisms employed to
                                                                                                    achieve this objective are not in themselves
                                                                                                    disproportionate, resource intensive, do not distort
                                                                                                    market incentives, and do not raise barriers to entry
                                                                                                    or expansion.” (Oftel re SIA February 2003)
 5.    C&W    General             2.1.1   Reference to need for safeguards where “there is          This is a general paragraph speaking about the
       +      Principles                  evidence that a risk of fault exists” is too broad.       objective of the policy. The process actually
                                          Inconsistent with triggers approach under paragraph       followed is detailed in subsequent paragraphs. If
                                          3                                                         evidence is uncovered as a result of the vetting
                                                                                                    exercise, then action may be appropriate. If there is
                                                                                                    no evidence of increased risk or liability, then no
                                                                                                    action need be taken.
 6.    VM/C   Objectivity    of   3.2     Need for more objectivity in the credit vetting           The process followed here is standard credit-vetting
       &W+    triggers      for           triggers particularly in respect of existing customers.   process.
              credit vet                  (C&W+ - should be based on two incidents per
                                                                                                    The “offence-based” regime developed for the SIA,
                                          period, as under the SIA, rather than one)
                                                                                                    is unduly restrictive.
                                          Quarterly credit    vets    without   cause    is   not
                                                                                                    Quarterly routine checks are typical and reasonable.
                                          reasonable.
 7.    VM     Objectivity    of   3.2.3   The credit vet should be triggered by evidence that       The evidence is produced as the outcome of the
              triggers      for           a customer’s credit limit is likely to be exceeded        exercise. It is based either on a forecast provided by
                                                                                                    the CP or triggered by orders or usage already in



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CREDIT VET REVIEW Issues summary 131009
              credit vet                   rather than according to BTW’s judgement.               the system. Vetting activity should also be proactive
                                                                                                   rather than reactive as prevention is better than
                                                                                                   cure.
 8.    C&W    Objectivity     of   3.2.4   Disagree with trigger of non-payment of undisputed      Non-payment of invoices to time is a matter of
       +      triggers       for           amount for seven days [under the SIA, two events        concern, and may be an indicator of wider
              credit vet                   trigger monitoring and two trigger a credit vet]        problems. This notes that BT may regard this as
                                                                                                   requiring closer inspection – it does not state that
                                                                                                   credit vet activity is an automatic consequence or
                                                                                                   that the provision of Security is required
                                                                                                   automatically.
 9.    VM     Objectivity     of   3.2.6   This clause should be deleted, the credit vet should    Reasonableness dictates that you do not take action
              triggers       for           not be at BTW’s discretion but trigged according to     without appropriate evidence, not that you do not
              credit vet                   an objective set of criteria.                           gather evidence.
 10.   VM     Notification   of    4       Customers should be notified in advance of the          Most suppliers carry out a great many routine credit
              credit vet                   credit vet being carried out, in particular to enable   vets which lead to the conclusion that no additional
                                           additional information to be supplied in accordance     activity is necessary. It would be over-the-top to
                                           with clause 4.2.                                        mandate that CPs must routinely be informed
                                                                                                   beforehand and given the opportunity to input
                                                                                                   beforehand.
                                                                                                   This paragraph was put in at CP’s behest, to allow a
                                                                                                   CP to pre-warn BT if e.g. a big order was about to
                                                                                                   be received, or if they knew that special
                                                                                                   circumstances were about to occur. There is
                                                                                                   provision for a CP to respond to those credit vets
                                                                                                   which lead to credit management activity under
                                                                                                   paragraph 5.1.1


                                           VM would like to see the inclusion of a clear process   Paragraph 4.4.2 specifies that if the customer
                                           for requesting a copy of the credit vet.                requests it (from his account manager) then he will
                                                                                                   receive an executive summary of the internal report.
                                                                                                   See also next response.




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CREDIT VET REVIEW Issues summary 131009
 11.   VM/C   Notification   of    4.1.1(b)   The Report should be provided on request not only       Paragraph 4.1.1 (b) specifies that the customer can
       &W+    credit vet                      if BTW chooses to do so. (C&W+ - if grounds for         request a copy of the full report, which BT may
                                              non-supply, should be specified transparently)          make available at its discretion. There may well be
                                                                                                      circumstances where it would not be appropriate for
                                                                                                      BT to release the report: it isn’t possible to predict
                                                                                                      and define in advance what those particular
                                                                                                      circumstances might be in any particular case. This
                                                                                                      is a BT document that relates to our assessment. It
                                                                                                      is not for general consumption (even internally)
 12.   VM     Vetting        of    4.3.2      Directors should only be subject to a credit vet in     Agreed - this only happens if the expert credit
              Company                         extraordinary circumstances; for example if there is    vetting team considers that the particular
              Directors                       evidence of a specific credit risk in relation to the   circumstances of the case merit it.
                                              director.

 13.   VM     Internal    credit   4.4.2      VM would like better transparency in the process as     See responses against 11 and 1 above.
              vet                             a whole, for example by making the entire internal
                                              report available to customers rather than simply the
                                              executive summary.
 14.   C&W    Calculation    of    4.6        Challenge definition of “average debt” (period,         This query is not understood – look to clarify at the
       +      current        or               inclusions)                                             meeting.
              estimated
              liability
 15.   VM     Calculation    of    4.6.1(a)   The credit limit should not be based solely on an       The credit limit is based on an algorithm that takes
              credit limit                    internal calculation which may not be objective.        various factors into account. These factors include
                                                                                                      D&B ratings, spending and payment habits with BT
                                                                                                      – see the answer against 1 above.
 16.   VM/C   Form            of   4.7.2      Depending on the form of security required, 10          In reality it will be flexible, if that is appropriate. In
       W      security                        working days is unlikely to be sufficient time.         general, a new product needing security will be put
                                                                                                      on hold until the security is received. “In life”, no
                                                                                                      security means no new supply over what has
                                              C&W+ - query timescales for Security – start,           already been provided.
                                              duration, end




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CREDIT VET REVIEW Issues summary 131009
 17.   VM/C   Form          of   4.7.3      Alternative forms of security should be subject to    BT has committed to consider other forms of
       &W+    Security                      agreement (possibly according to a pre-determined     security – see paragraph 5.2. But obviously –
                                 4.7.3(f)
                                            set of criteria) rather than at BT’s discretion.      barring dispute via paragraphs 5.1.7/5.1.8 for
                                                                                                  regulated products – it must be something that BT
                                                                                                  finds acceptable.
                                                                                                  It is not possible to be more definitive, when the
                                            C&W+ - BT process and timescales need to be           circumstances     and    options    for   particular
                                            better defined.                                       circumstances can’t be anticipated.
 18.   C&W    Sanctions for      4.7.5      Refusal to supply or suspension until security        See response against 16 above.
       +      failure       to              provided.
              provide security
                                            It seems excessive that existing service may be       Any sanctions taken will be measured and
                                            suspended even when the customer doesn’t              reasonable – and obviously BT is answerable to
                                            represent an immediate threat. Where is the           Ofcom where regulated products are concerned.
                                            proportionality in this?                              Obviously any interruption to service would be very
                                            Also the process for refusal to contract or suspend   carefully considered and handled.
                                            service must have a (clearly defined) start and end
                                            point.                                                “The difficulty of drafting an appropriate provision for
                                                                                                  suspension of service in this case is that the
                                                                                                  circumstances of each case will no doubt
                                            See also clause 10  unclear and not directly
                                                                                                  differ……..It is clear the suspension of an operator’s
                                            related to 4.7.
                                                                                                  service is a drastic measure. As has been stated,
                                            Includes e.g. “The applicant has overdue debts with
                                            BT or a BT Associated entity”                         Oftel has in the past engaged in dialogue with both
                                                                                                  BT and operators when operators have in the past
                                                                                                  been experiencing financial difficulties. In light of
                                                                                                  this, the Director would, as a matter of course,
                                                                                                  expect Oftel to be consulted before an operator’s
                                                                                                  service is suspended.” (Oftel re SIA February 2003)


                                                                                                  Generally any action would commence when the
                                                                                                  need for security was identified, and would continue
                                                                                                  until appropriate security was received.
 19.   VM     Disputes    and    5          The disputes process seems to apply only in certain   Presumably the comments here are in relation to




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CREDIT VET REVIEW Issues summary 131009
              Appeals                 circumstances, for example arrangements for               regulated products.
              process                 settlement cannot be appealed (9.2). The dispute/
                                                                                                BT considers that there is an appropriate appeals
                                      appeals process should apply in all situations and
                                                                                                procedure, potentially involving an independent
                                      should always be referred to an independent body
                                                                                                body.
                                      for determination.
                                                                                                For settlement type, there is a transparent formula –
                                                                                                and BT considers that an appeals process would be
                                                                                                unnecessary and unreasonable.
 20.   VM     Refund       of   6.1   The period for which BTW can hold deposits from           BT considers that a 12 month period is reasonable;
              deposits                customers should be reviewed as the current criteria      and obviously there is provision for the parties to
                                      for refund is not reasonable.                             agree a different period if the circumstances make
                                                                                                that appropriate. Evidence from the Insolvency
                                                                                                Industry suggests that securities should be held for
                                                                                                up to 18 months for new companies.
 21.   C&W    Refusal      of   10    Unclear how this ties up with the rest of the process.    Previously this paragraph was triggered by
       +      Service                                                                           individual references in the accompanying
                                      No linkage with 4.7                                       Appendices – but it appears that this text was not
                                                                                                amended when the text of the Appendices was
                                      Includes: The applicant has overdue debts with BT         rationalised. See possible draft revisions attached.
                                      or a BT Associated entity
                                                 Any overdue debt? [not proportional]
                                                 What is an Associated entity?

 22.   C&W    Monitoring        11    Virtually gives the ability to BT to request a security   This is about proactive customer management,
       +                              at any time, without linkage to payment default or        looking to avoid credit limit problems which might
                                      other incident                                            occur. This allows a request for further security if the
                                                                                                credit limit becomes exhausted or looks like
                                                                                                becoming exhausted.
                                      Paragraph 5.5 does not exist
 23.   VM     -                 -     VM considers that the policy should be 2 way and          This is a policy developed by BT to cover a defined
                                      applicable to BT when purchasing products from            set of products and its particular customer base. It
                                      CPs.                                                      also covers both regulated and unregulated
                                                                                                products. The particular credit vetting requirements
                                                                                                of a CP supplying BT with a particular CP product



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CREDIT VET REVIEW Issues summary 131009
                                                                                                 would need to be considered.


 24.   VM     Confidentiality   -        VM would like to see the inclusion of confidentiality   Covered by the contract text and statements that
                                         and data protection obligations, particularly if BTW    the vet complies with relevant legislation.
                                         is vetting company directors individually.
 25.   GC     General           PPC      Suggest that Credit Vet activity unnecessary for        BT considers credit management activity is an
                                Credit   PPCs                                                    essential part of business. Obviously the customer
                                Vet                                                              base,     economic      circumstances,    customer
                                         (i) nature of the product/customer base
                                Policy                                                           circumstances and customer behaviour change over
                                         (ii) provision for default interest rate                time – and so credit management will be more
                                                                                                 pronounced in some periods more than others.
                                         (iii) “double dipping” because of bad debt element in
                                         product pricing
                                                                                                 Re (ii) and (iii) see response against 4 above.




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CREDIT VET REVIEW Issues summary 131009

				
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