Flexstrom, private electricity provider in Germany, declares insolvency on April 11 2013.
According to first official communication, bad payment behaviour of customers would be the main cause for insolvency. Apparently, 100 M€ overdue customer claims where open at the moment of insolvency.
If this information is confirmed, it would indicate a big failure in credit risk management, if not an even bigger in pure management.
1.Facing potentialy high not paid invoices should be expected and controlled in a company applying a very aggressive growth strategy.
2.Having 100 M€ overdue open claims for a yearly revenue of approx. 600 M€ in a low cost service provider (electricity or other) is more than simply
3.Having 100 M€ overdue open claims for only 570 k customers (200€ per active customer!!!) shows either fraud at large scale or a lack of strong
collection measures. The question here is to know what was done towards customers having open claim to make them pay.
How can such a dramatic end be avoided?
Watching at the numbers and latest communication, it looks like the growth strategy led to overtake of the sales processes over service processes (including billing). This can of course happen when companies want to grow „at any price“. The price to pay in this case is high overdue claims rate and consequently a lack of cash. In order to avoid this overtake, the top management should have pushed the whole company to go for a controlled growth instead of a maximal growth.
My recommendations if you face similar situations:
- Get support from risk management professionals to ensure that your growth doesn't go uncontrolled
- Get support from customer management specialists, especially for collection topics
- Invest proportionaly equaly in your customer services and in your marketing/sales in a growth strategy