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					Policy for Credit Vetting and Security Deposits

Openreach Credit Vetting & Security Deposits Policy
For Wholesale Line Rental Portfolio

Document Contents
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Policy for Credit Vetting and Security Deposits

Section No

1 2 3 4 5 6 7 Appendix A Appendix B

Title Glossary of Terms Introduction Background Scope of this document External/Internal Credit vetting information Deposit requirement process Deposit payment terms and alternatives Refund of Deposits Review Refusal of Service External credit rating table

Page No: 2 3 3 3 3 5 7 9 9 10 11

Glossary of Terms
Description Wholesale Line Rental Portfolio Definition Comprises “Wholesale Access, Wholesale Digital Access, Wholesale ISDN30 and WLR (EMP)” An established business is one that has been actively trading (not dormant) for a full accounting period (12 months). The Business has either filed a set of audited accounts with Companies House, or has publicly available audited accounts covering a complete trading period.

Established Business

Start-Up Business

Previous payment history Restriction to the SP Gateway (SPG) Full operational year

Security Deposits Deposit Calculation

A business that has been newly set up and has not yet completed a full accounting period (12 months). Therefore it has not filed accounts at Companies House or prepared independently audited accounts. Payments to Openreach over the past 12 months only Allows CP’s to place Cease and Outgoing Calls Barred (OCB) orders only A year from when the CP has money owing to Openreach and makes 12 consecutive payments within the contractual time. This includes bank guarantees The denominator is calculated as an average of Openreach’s exposure to the line rental across the portfolio

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Policy for Credit Vetting and Security Deposits

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Policy for Credit Vetting and Security Deposits

COMMUNICATIONS PROVIDER (CP) POLICY FOR CREDIT VETTING AND SECURITY DEPOSITS
Introduction This document sets out the criteria by which Openreach determines whether a CP requesting Wholesale Line Rental (WLR) is required to provide a security before being provided with service and, if so, the amount which is required. If a credit check indicates that a financial risk might exist for either new or established CPs a security deposit may be required either prior to a contract being signed or prior to new orders being accepted if appropriate. 1. Background

1.1

Openreach has a responsibility to all its customers and shareholders to ensure that its commercial interests are safeguarded and that service is not supplied unconditionally where there is evidence that a risk of default exists.

1.2

Openreach recognises that where risk is identified, any debt limitation measures that apply will be compliant with competition law and applied in a consistent and nondiscriminatory way.

2. 2.1

Scope of this document This document describes the process for all Wholesale Telephony Products (WLR). All CPs will be initially credit vetted at the pre contract stage, and their progress will be reviewed regularly, across the WLR portfolio. The WLR Contract will take precedence over the credit policy should any disputes arise. This document must be read in conjunction with Forecasting and Order Prioritisation Process that supports the WLR portfolio

2.2

2.3

3. 3.1

External/Internal credit vetting Information External Credit vetting Information: It is standard commercial practice, in all markets and industries, to use external credit data to determine default risk. Openreach uses Dunn & Bradstreet and Graydon as its external credit specialists for its credit vets. Information relating only to the companies used, not information received will be provided to the CP on request; it is the CP’s responsibility to query credit ratings with these firms. Openreach will conduct its credit search based on the company registration number and the address provided by the CP.

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Policy for Credit Vetting and Security Deposits

Limited Companies For limited companies a Comprehensive Report provides detailed data which includes:  Statistical scores to identify the likelihood of default  Financial information and key business ratios  Payment information and trending analysis  Business background  Trade Payment Record and financial risk assessment  Public record filings  CP auditable information This information gives an indication of a company’s overall viability. Non-Limited Companies For non-limited businesses a Non-Limited Report provides information, which includes a Rating, a 'maximum credit recommendation’ and payment performance data. Based on these reports the external agency advises Openreach on the maximum credit limit for each company. The information that Openreach obtains for these report is in the public domain and Openreach will make this information available on request. 3.2 Internal Credit Vetting Information: Openreach uses its Billing and Financial systems to determine CP spend and payment history, subject to applicable regulatory and legal compliance. The information used will be no more than 12 months old. 3.3 Should a CP wish to provide further information (eg audited but not yet filed accounts) then these may be submitted at any stage during the credit vetting process. Openreach will accept information provided from the following companies;       Graydon Dun and Bradstreet Bureau van Dyke Equifax Moodys Standard and Poors

3.4 If there is a difference between the external credit rating and that produced by Openreach’s internal data then the internal rating will take precedence.

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Policy for Credit Vetting and Security Deposits

4. 4.1 4.1.1

DEPOSIT REQUIREMENT PROCESS New Wholesale Telephony CPs - Established Business Definition: -

An established business is one that has been actively trading (not dormant) for a full accounting period (12 months). The Business has either filed a set of audited accounts with Companies House, or has publicly available audited accounts covering a complete trading period.

4.1.2

If the CP is an established business, data should exist relating to the company’s financial performance, which will enable a credit limit to be recommended by the external agency. Openreach internal information will also be reviewed to ascertain the businesses’ payment history and any record of defaults of payment. There is no specific time limit for taking account of earlier defaults but the review of payment history will be limited to the preceding 12 months.

4.1.3

During the first 3 months of WLR operations by the CP, connections, conversions and transfers of lines/channels will be processed on normal credit terms as per this policy. The maximum number of lines/channels, which may be added to the CP’s base, is calculated by dividing the available credit limit by £45. The “available credit limit” is defined as the recommended credit limit, less any other indebtedness to Openreach. All further references to credit limits in this document should be taken to be the recommended available credit limit. Where the CP’s forecast is in excess of that allowable under para 4.1.3, deposits will be required for the excess lines/channels based on the formula stated.

4.1.4

4.2

New Wholesale Telephony CPs - Start up Businesses.

4.2.1 Definition: A business that has been newly set up and has not yet completed a full accounting period (12 months). Therefore it has not filed accounts at Companies House or prepared independently audited accounts.

4.2.2

All new CPs will be subject to external credit checks at the pre contract stage, using information from appropriate independent external agencies including Dun & Bradstreet and/or Graydon. The credit vetting is based on information requested from the CP including:    Full trading name and address Type of business Length of time in business 6

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Policy for Credit Vetting and Security Deposits

   4.2.3

Whether the company is limited and if so, the company registration number Date of formation of the company Name and address of all of the director(s) or partners

If no relevant information is obtained on the business; the director(s) will then be vetted, subject to legal compliance. This process will highlight the following credit information, for example: (A) Any of the directors (in the case of a company) appears on the disqualified director list. (B) There are any Court Judgements in relation to the partner/sole trader.

4.2.4

The appropriate Credit Vetting Group within Openreach will then review each case in detail obtaining further credit data including a Dun & Bradstreet or a Graydon report. It should be noted that there are some instances where service will be refused (see Appendix A). Where the review indicates that there is financial risk, a deposit will be requested. (£45 per line/channel) This is based on the CP’s forecast base of line/channels for st the 1 three months of operation obtained from the forecast provided in accordance with WLR Terms and Conditions. In the case of a satisfactory credit checks, Openreach will transfer/provide/ convert the number of lines/channels forecast by the CP without any deposit. However, if the number of end user transfers/provisions/conversions is forecast to be greater than the number of lines/channels forecast deposits will be required for the excess lines/channels at the standard rate (£45 per end user). However if following reasonable endeavours, Openreach is unable to obtain sufficient information on the business, no credit limit will be allowed and deposits will be required to cover the forecast level of growth before any transfers, provisions, conversions will be processed. A deposit may be required if a CP wishes to significantly increase their end user volumes. A significant increase is deemed to be where after the initial 3 months, the number of lines/channels increases by more than the growth allowed shown in the table in Para 4.2.10 An updated credit check may be obtained every 6 months. This will be taken into account together with the CP’s payment history and a decision made as to allowable credit. Openreach will monitor the CP’s performance against credit rating and will instigate a credit check should the CP exceed their rating. Openreach will use reasonable endeavours to complete this check within 48 hours.

4.2.5

4.2.6

4.2.7

4.2.8

4.2.8

4.2.9

For a CP with a credit limit of £100,000 the following table outlines the allowable growth without paying a deposit:

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Policy for Credit Vetting and Security Deposits

Length of Service

% Growth allowed

Total number of Lines/channels allowed without a Deposit

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

200% 70% 60% 50% 40% 30% 30% 25% 25%

2222 4444 7555 12088 18132 25385 33000 42900 53625 67032

4.2.11 For a CP with a credit limit of £500,000 the following table outlines the allowable growth without paying a deposit. Length of Service % Growth allowed Total number of Lines/channels allowed without a Deposit

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

200% 70% 60% 50% 40% 30% 30% 25% 25%

11,110 22,220 37,775 60,440 90,660 126,925 165,000 214,500 268,125 335,160

4.2.12

For the purposes of this policy, a good payment history is considered to be when the CP has paid all WLR bills, or the undisputed elements of them, within 14 days of the due date. If a CP fails to make a payment for overdue invoices (older than 14 days) then Openreach reserve the right to offset any deposits or securities held against the account.

4.2.13

5. 5.1

Deposit and Invoice Payment Terms and Alternatives Payment of any deposit shall be made in the form of cheque, CHAPS or BACS into a bank account nominated by Openreach. 8

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Policy for Credit Vetting and Security Deposits

5.2

A guarantee from a recognised bank, or similarly acceptable institution, for the equivalent value of the deposit is an acceptable alternative. It is the CP’s responsibility to obtain this for Openreach in an acceptable form before orders will be processed. A draft copy is available from the Openreach Credit-Vetting unit.

5.3

In a “start-up” situation, deposits (where required) to cover the first 3 months’ forecast transfers/provisions/conversions must be paid in full in advance of any transfers/ provisions/conversions being processed. If the option of a bank guarantee is exercised by the CP, the full amount of the guarantee must be lodged with Openreach before any transfers/provisions/conversions will be processed. If additional deposits or guarantees are subsequently required, they must be paid to Openreach before any transfers/provisions/conversions will be processed. Alternatives may be discussed, but must be agreed by both parties. Openreach will restrict access to the Service Provider Gateway (SPG) for the following reasons;  CP has exceeded their credit limit  CP have failed to submit a monthly forecast Until any required deposits/securities have been received Openreach will not lift the restriction to the SPG.

5.4

5.5 5.6

5.7

The credit check will also be used to provide information relating to invoice payment options for each Communications Provider. If a Communications Provider has a score of 3 or 4 on the Dunn and Bradstreet report then invoices must be paid by Direct Debit. If a Communications Provider has a score of 1 or 2 then invoices may be paid by CHAPS, BACS or Direct Debit. An explanation of these scores is attached in Appendix B. In addition to section 5.7, Openreach uses information from its Sales, Billing and Financial systems in order to create a score for each CP. Disputed elements of invoices are removed from the internal information prior to scores being calculated. The scores are:-

5.8

A B C D E

= = = = =

Excellent Very Good Average Below Average Poor

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Policy for Credit Vetting and Security Deposits

If a Communications Provider has a score of D or E then invoices must be paid by Direct Debit payment. If a Communications Provider has a score of A, B or C then invoices may be paid by CHAPS, BACS or Direct Debit.

6. 6.1

Refund of Deposits Where a deposit has been required during the first year of the CP’s operations, or at any other time for poor payment or other contractual reasons, it will be held until a year of payments have been received within the contractual terms. After this term CPs will be repaid or credited against current invoices on the CP’s account. This repayment/credit will include any interest earned. The interest paid back on deposits is in line with the current Bank of England rates. If, after the initial 12 months, a CP wishes to grow the number of lines/channels such that it exceeds their updated credit limit a deposit will be required. Any deposit will be retained for 12 months and repaid under the terms set out in para 6.1. Review All CPs may be credit vetted on a six monthly basis and an allowable forecast will be calculated for them in line with the SPG. Should a CP wish to significantly increase their lines/channels or Openreach reasonably believes the CP is displaying signs of business failure, Openreach reserve the right to credit vetting the CP before each six month period has expired. Where necessary the credit limit may be adjusted. This change will be discussed and notified to the CP. If a CP disagrees with the credit limit allowed they have the right to provide Openreach with substantial information to support their position. Openreach will review the credit limit within 10 working days of receipt of that information. Disputed bills, or disputed elements of bills, are disregarded for the purposes of assessing payment history, provided that the dispute has been notified in accordance with the Wholesale Telephony Terms and Conditions.

6.2

7. 7.1

7.2

7.3

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Policy for Credit Vetting and Security Deposits

APPENDIX A

Refusal of service Service will be refused if: 

The application is in the name of a limited company and any one or more of the directors appear on the list of disqualified directors then the company will be refused service. The limited company may reapply when records held at the Companies Registration Office reflect the resignation as director(s) from the company. One or more directors of a limited company are under 18 years, then service will be refused. The limited company may reapply when records held at the Companies Registration Office reflect the resignation(s) from the company of the person(s) who are under 18 years; One or more members of a partnership are under 18 years, then service will be refused, although the remaining partner may reapply as a sole trader or remaining members may reapply as an amended partnership. Insolvency proceedings are outstanding in relation to the applicant ( e.g. winding up petition issued ) There is any Court Judgement in relation to the partner or sole trader.





 

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Policy for Credit Vetting and Security Deposits

APPENDIX B Comparison of the different nomenclature used by external credit rating agencies

Dun & Bradstreet 1 Minimal Risk 2 Low Risk 3 Slightly greater than average risk 4 Significant level of risk

Graydon A Excellent B Good C Fair D Poor

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