Timber sales credit procedure
Statement and Purpose
Our values reflect who we are. Our policies support us to live those values in the work that we do. This policy helps us to demonstrate our passion for the environment, care for each other and the people we work with, act with and be proud to serve the people of Wales.
Credit for timber customers is a facility provided by NRW at its discretion, to permit regular timber customers in good standing, to dispatch timber daily, and to pay for it in line with the credit facilities. This allows customers to manage their cash flow so that payment is made on time, and it reduces the transactional costs for both parties. Even so, any credit facility introduces an element of financial risk for NRW that must be managed.
Transactional Finance Support Team (TFS), Business Support Team (BST) and Timber Sales Team (TST) must play their part with Operations Teams in an effective credit management system, which embodies excellent customer service, to timber buyers and to NRW.
Compliance
TFS must:
- Actively engage with the customers to manage account status and resolve queries.
- Set, manage, review and withdraw credit limits.
- Actively manage payments that fall due.
- Suspend trading where the customer fails to pay on time.
- Prepare and distribute the daily dispatch bulletin.
BST must:
- Manage timber dispatch and self-billing invoicing and resolve dispatch issues with the customer.
TST must:
- Engage with TFS and customers to agree trading levels and credit applications.
- Consider the volume forward sold to the customer before awarding more contracts.
- Maintain a market awareness of the customer’s position and potential changes.
Operations Teams in Place must:
- Manage the customer’s sales contracts to timely starts and conclusions.
- Facilitate access, dispatches, and time extensions as appropriate, to allow the customer to meet their obligations.
- Manage timber security.
Purpose
- To guide the setting of appropriate credit limits for timber customers to reduce financial risk, to NRW, whilst permitting a suitable and sufficient level of trade for customers.
- To guide the management of credit facilities in accordance with the terms of timber sales contracts.
Scope
This guidance is relevant to:
- BST management of customer dispatches and pipeline credit against cleared payments.
- TST management of customer compliance with Timber Sales Contract terms and conditions.
- TFS management of credit limits and payments falling due.
Procedure
Overview
- Customers must complete a credit application form, by requesting this from the TFS team, for a new credit facility or to change their existing facility and send this via email to TFS Timber Mail box – Online@cyfoethnaturiolcymru.gov.uk
Then, in line with this Policy document… - TFS will check that the customer is eligible and request any information required to determine the application. Once TFS has all the information, the aim is to decide the application and notify the applicant within 6 weeks. Though more complex requests may take longer as it may involve legal advice.
- TFS will copy the application to TST. TFS will consider the financial information and TST will consider the customer’s trading position considering forward sold contracts.
- TFS will propose a credit limit and discuss with TST to agree a position.
- TFS and TST will apply the decision as per this guidance.
- TFS will monitor, manage and review each credit facility, liaising with TST and BST, as necessary.
Key principles
Timber sales credit terms
Billed customers
Credit terms for timber sales are expressed in the contract terms and conditions as
‘Payment is due at the end of the month following the month in which the invoice is raised.’
Invoices are raised by MyNRW for each dispatch of timber. To manage a ‘pipeline’ value of dispatches, they are given an estimated weight of 25 tonnes until the actual weight and dispatch ticket is recorded. Pipeline does not include VAT which is added once the invoice is raised.
For cash-up-front customers, the value of each dispatch recorded on the Ready Reckoner is 30T plus VAT. This is updated to actual once the weight-ticket has been received.
TFS sends statements to customers shortly after the end of each month to show all outstanding invoices (estimated or actual weight) raised incorporating the credit or debit adjustments for estimated dispatch weights converted to actuals in the month. The statement balance must be paid for all invoices falling due for payment. Due payments must be made in full. Customers may not withhold part of a due payment to maintain a credit balance on their account.
Example
The customer dispatches 20 loads of timber in June on credit terms. The dispatch data from TSS (BST) then automatically feeds into MyNRW (TFS) which generates 20 new invoices during June. TFS sends an account statement to the customer at the start of July incorporating the new invoices, any payments made in June and any adjustments to estimated weights. The customer must pay the balance on that statement by the end of July.
Due payments must be made in full. Customers may not withhold part of a due payment to maintain a credit balance on their account unless a regular payment plan has been agreed with the customer, and it is being met.
Self-billing customers
Self-billing customers will email a CSV file of dispatch data along with their self-bill invoice weekly to BST. Each invoice will cover one or many dispatches. The Customer will make payment against their supplier’s invoice at the end of the following month in line with credit arrangements for billed customers.
Eligibility for a credit facility
Credit is offered at the sole discretion of NRW. All credit applications must be considered and offered in a fair and equitable way. This does not mean that different customers get equal credit facilities, as the level of credit offered will be specific to each customer’s circumstances. However, each customer must get the same opportunities to apply and be considered for credit facilities, and each customer is to be treated equally in NRW’s management of their credit. Equal treatment means for example, that every customer will be required to make each payment as it falls due.
New Customers
New timber customers will be required to trade as cash customers for up to 12 months trading in total from the date of first transaction, prior to requesting a credit limit. BST will inform all new customers of the payment process and dispatch procedure prior to first uplift. The Timber Sales & Marketing Manager in agreement with TFS, may reduce that period at any time and to any shorter length of time if they are content that the customer or their representative has a known trading history in the industry already, via local knowledge and input from the Head of Sales and Marketing.
Monitoring of new credit customers by TFS will be rigorous and any missed payment or exceeded limit for any reason at all, will result in suspension of credit and trading until all due payments, or any additional interim payments, have cleared.
Dormant customers
Presumption to reduce or remove credit facility from timber customers who are not actively bidding for a period of 4 consecutive e-sales.
Deed of Guarantee
In lieu of cash trading, a new customer (or one whose legal status has changed for example, through corporate merger or buy-out) may offer a Deed of Guarantee from a larger parent company to cover the customer’s requested credit facility. This must be agreed and written by NRW’s Legal Team.
The customer’s credit limit will be set at 90% of the requested credit limit and dispatches will be suspended if that is exceeded, until due payments or any interim payments are cleared.
The validity of a Deed of Guarantee must be re-confirmed by letter with the parent company from time to time in line with normal reviews of credit facilities. The customer must arrange for this confirmation and pay any associated costs.
Bank Assurance
New businesses without a trading history or set of accounts may produce a written Bank Assurance document offering to underwrite a requested credit limit. This will be acceptable provided The Bank Assurance explicitly covers NRW’s lost timber value if the customer defaults. The customer must arrange and pay for their bank to provide any additional document or letter NRW requests to make this explicit assurance. The bank assurance will be reviewed by NRW’s Legal Team before final acceptance.
The customer’s credit will be set at 75% of the Bank Assurance figure and dispatches will be suspended if that is exceeded, until due payments or any interim payments are cleared.
The customer must apply for and be granted an NRW credit limit within 24 months, supported by their trading record and annual accounts. If a credit facility is granted, and it may well be less than the Bank Assurance figure, the credit facility supersedes the Bank Assurance, which can no longer be relied upon. If a credit facility is refused, the customer must provide a new Bank Assurance otherwise they will revert to trading as a cash customer only.
If no Bank Assurance is provided, the credit facility will not be awarded.
Credit limits
Credit limits are at the discretion of NRW and are in place to reduce NRWs commercial risk. Customers who do not wish to trade with NRW on the credit terms offered can only trade as a cash customer making payments in advance of dispatch. These pre-payments must have cleared NRW’s bank account before dispatching can continue.
Consideration of customer trading levels with NRW
Generally, and provided there are no significant risks identified, a working credit limit for billed timber customers should seek to accommodate 8 to 10 weeks’ normal trading capacity. This is to allow for payment on the timber sales contract terms, plus a margin to allow for continuity, for example to allow some trading during the routine resolution of any dispatch issues.
Credit limits that exceed that required for the customer’s trading level are an increased risk to NRW and should be managed down to a more acceptable level whenever the limit is reviewed (see ‘Reviewing credit limits’ section below).
Consideration of financial information
Credit ratings produced by credit agencies such as Experian are an important part of the whole picture but may not necessarily reflect the market conditions for the trade in roundwood timber where there are limited supply options (growers), and larger customers have a heavy dependence on a constant supply from NRW.
Deeds of Guarantee and /or Bank Assurances offered by the customer can be given higher weighting in this consideration of financial information. See ‘Eligibility’ section.
Determining an appropriate credit limit
The customer’s requested credit limit should be treated only as an indicator of the customer’s expectations rather than a figure to be agreed or not. NRW may decide to offer a lower credit limit instead of refusing the application outright.
TFS will determine an appropriate credit limit for the customer in discussion with the Timber Sales & Marketing Manager (TSMM), considering the financial view together with the necessary trading levels and any market intelligence, price trends or other information the TSMM may be aware of.
The rationale for any decision will be recorded and held by TFS with the customer’s credit files. TFS will also consider whether other forms of assurances are required.
NRW’s Managing our Money policy will determine who will approve changes to credit limits.
Applying the credit limit
Once the credit application has been agreed, TFS will notify the customer of the agreed credit limit via email. TFS will manage the credit account and be the customers point of contact for credit and payment matters.
If the agreed credit limit will accommodate the customer’s request level, then TFS will deal with the customer (and TST and BST as necessary) to set the requested facility up and manage it.
If the agreed credit limit does not accommodate the requested level, then TFS will discuss with the customer first. Once a reduced limit or other way forward has been proposed (e.g. a reduced trading level or interim payments to accommodate a reduced credit limit) TFS will inform TST and will deal with the customer (and TST and BST as necessary) to set that facility up and manage it.
Payment plans
Payment plans may be used to allow the sale of new timber parcels to a customer who is trading close to their credit limit, or for a customer to manage a trading level above that accommodated by their credit limit.
As part of their normal management of credit customers, TFS may require a customer to make regular interim payments (for example fortnightly payments) to permit temporary trading levels that would otherwise cause pipeline trading to exceed their credit limit. Ideally a payment plan should also seek to create additional headroom to allow trading until the next payment falls due.
The customer may also request a payment plan to help them manage their trading level.
TFS will decide and manage any additional payment plan, as appropriate for the individual customer. TST and BST should be informed if a payment plan is being considered for any customer. If the customer decides not to do this when requested by TFS, then the credit limit is firm and dispatches will be suspended each time the credit limit is reached until all due payments, or any additional interim payments, have cleared.
Daily credit monitoring
TFS will prepare the daily credit bulletin listing the current position for each customer and email to the agreed distribution list. Once a year TFS will check that the recipients of the credit bulletin are appropriate and correct.
Continuous monitoring of credit usage will be undertaken by TFS. If the rate of payment over a month matches the rate of credit used over a month, then trading continuously around the customer’s credit limit is acceptable.
Any default of payment terms should trigger a stop on further dispatches until a payment is made.
All customers
Stage 1: Customers who exceed 70% of their limit are emailed by TFS that day advising the position.
Stage 2: Customers who exceed 85% of their limit are emailed by TFS that day advising them to pay an amount to their account immediately.
Stage 3: Customers who have not paid an amount as requested the day before, and so go over their credit limit are to be contacted immediately to establish a reasonable cause such as;
- Customer is awaiting a credit from NRW. An extra day is allowed before acting further.
- It is recognised that customers may not always flow through the 3 stages in sequence.
If a reasonable cause is not established, or the extra day to rectify the situation does not result in reduction of credit to below the limit, the customer is to be immediately prevented from dispatching more timber (See ‘Placing a stop on dispatches’ section below).
Self-billing customers
The rate of dispatch may vary a lot during a working week depending on factors like weather, access, and contract management requirements. A self-billing customer’s pipeline credit value can temporarily exceed their limit until the next invoice is paid (usually weekly). SBI is sent in weekly, payment is not necessarily done weekly.
TFS will monitor all self-biller’s pipeline credit value to check these immediate trading fluctuations. Where pipeline credit is temporarily high, up to 110% of the credit[1] limit is acceptable for 5 business days (1 week) or less. Exceeding these limits for longer than 1 week will trigger a stop on dispatches until an additional payment or the next due payment is made.
Placing a stop on dispatches
For credit control purposes, TFS will manage this process and decide when a customer is to be placed ‘on stop.’ TFS will inform BST by email to prevent the issuing of further dispatch PINs to the customer. Given that the pipeline credit value can build quickly, this must be done quickly to give the customer an opportunity to put their account right immediately.
The customers are informed of the intention to stop dispatches due to them exceeding credit limits or not paying due sums, before the ‘on stop’ action is implemented. This ‘fair warning,’ and the 3-stage process is outlined in the ‘Credit monitoring’ section above and applies to all customers.
Dispatches already requested at the time the customer is put on stop should be honoured.
Reviewing credit limits
Each credit limit will be reviewed at least once every 12 months by TFS. A rota will be used to conduct them throughout the year rather than all at one time. Customers are expected to notify us of a change to their trading status by revising their “Timber Sales Questionnaire Form” which is prerequisite of bidding in eSales. This includes merger, takeover, County Court Judgements, IVA, DVO or charges filed against a business. Any known or suspected change in a customer’s trading status that signifies a potential financial risk, (including business intelligence from forest operations or timber sales staff) will also trigger an interim credit review.
If, at the time a review is due, TFS have done a review as above, considered a customer’s request to increase a credit limit, or considered an intervention such as payment plan in the previous 3 months, that counts as a review and the next review may be held over to the next year.
A credit review will start with TFS notifying the customer by email and requesting any changes to the original credit application form. The review will then follow the Credit Limits section above. Additional information should be requested if needed (see Bank Assurance above). Where there are no declared changes and no indication of concerns from past trading, Stage 3 can be minimised to an Experian check and last year’s P&L statement.
If an existing credit limit has not been used in the last 12 months NRW reserve the right to revoke the credit limit. (See "dormant customers").
Managing credit limit reductions
When a credit limit is to be reduced following a review, TFS must inform TST and BST and notify the customer in writing. TFS must propose a reasonable timescale to achieve the reduction without causing a significant step-change in the trading capacity / cash flow of the customer.
If a credit limit is to be removed entirely, TFS will first notify TST, before notifying the customer.
The customer may propose an alternative timescale to allow them to make any necessary arrangements and NRW will consider the customer’s position, provided the transition can be completed within an acceptable timescale.
New timber sales contracts
About 6 weeks before each national timber eSale, TST and TFS will formally meet to discuss whether any customers are giving concern over their credit use or payments and apply a financial red flag if necessary. Indications of concern might include:
- Trading consistently near their credit limit in the past 3 months
- Failing to make a full payment in the past 6 months
- Payment plan in place to manage credit limit.
- Request received to increase credit limit.
The TFS, AR Team Leader, or a delegate, will be invited to each eSale award meeting to offer advice on the day. If a winning bid is from a customer who has a financial red flag, that bid will be pending until TST discusses the potential implications with the customer. Following that discussion, the Timber Sales Marketing Manager will decide whether to recommend the sale of any of the lots to that customer. All recommendations and decisions will be recorded by TST as part of the sale documentation.
Other relevant information
Sale contract schedule 5 – dispatch procedure
Equality and Diversity
We are committed to a culture of equality, diversity and inclusion. We aim to ensure that no-one receives less favourable treatment on the grounds of their age, disability, gender reassignment, being married or in a civil partnership, pregnancy, race, sex, sexual orientation or religion, belief, or non-belief.
Contact
This procedure and related procedures are owned by Head of Finance and managed by Transactional Finance Services. It is developed in partnership with Timber Sales Team and Business Support Team.
Approval
Approved by: Rob Bell, Head of Finance
Version
First published 01/10/2021
Reviewed 22/5/2023
2nd review 01/07/2025
This policy will apply as a functional policy and is considered as compliance.
(For more details on these definitions, categories of policies and implications of non-compliance, please see the Delegated Authority Schedule).
For first review in 12 months’ time and then every two years. Amendments will be made sooner where a relevant change in legislation or business requirement occurs and following discussions with the representing Trade Unions.