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Cash Flow is King in Every Business – 5 Simple Credit Control Tips

Every business wants to earn money and make a profit, by offering quality goods and services to their clients and standing out from their competitors. It makes good business sense to then invest this profit back into the business, so they can provide more a comprehensive list of services & offer or manufacture better products for their clients. This profit should also be invested back into the people who work for the business to ensure they are rewarded & trained properly for the job they carry out, this in turn will ensure that clients are then receiving the level of service they would expect.

All of the above makes for the ideal business model, maybe in the world of make believe, but let’s step into the real world of business & 2018. Since the recession and banking crash of 2008, businesses have been suffering badly as a result of Late Payment behaviour by their clients. Billions of pounds are written off by UK businesses each year because of Late Payers . It’s almost become the norm for big businesses to hang smaller businesses out to dry, and not pay them for long periods of time in the hope that they go the wall and they can they hopefully then cut a deal with the liquidators and settle only a small percentage of what was originally owed.

This whole scenario is a very sorry state of affairs, so how can we resolve the issue and ensure your clients pay their accounts on time? Here are some simple tips that can be implemented easily to your business, will deliver results straight away & ensure that your cashflow remains intact –

1. Clearly set out your Payment Terms & Conditions

It’s extremely important to set out your company’s payment Terms & Conditions in writing. This can be including in your own Terms & Conditions on your contracts or credit application forms, but also stated on your invoices. It amazes me the amount of businesses who simply don’t have any payment Terms & Conditions, and if they do their clients are not aware of them as it has not been brought to their attention before. Debtors are very conscious of what they have to pay, but if this is not set out in black and white then the company has nothing to fall back on, should the debtor then start to query these. Setting out your Terms & Conditions in writing highlights them to your clients and creates a clear and consistent approach.

2. Reward Clients who pay on time or early

We always tell our clients a good customer is a paying customer. Research has proven that rewarding negative behaviour has little impact. Say you have an employee who is continuously scrutinised for making small errors. Your employee will feel under valued and their overall performance will suffer as a result of this. Whilst you would want the employee to improve and give feedback on where they have gone wrong, if this employee also receives positive feedback on areas they are strong at, they will continue to improve and demonstrate positive behaviour. You should try and reward clients who pay on time or early. For Example, you could give the client a discount off their invoice for paying early or on time or offer them a discount of their next order as long as they pay within the timescales set in your Terms & Conditions. This will make your clients feel special & valued by the business, which in turn will increase sales and turnover.

3. Send your invoices out with the goods or services

A lot of businesses we deal with raise invoices to their clients at the end of start of each month, by this time their client could have been in receipt of the goods or services they ordered for two to three weeks already before receiving an invoice from the company. This does not make good business sense, and invoices sent after at the end of each month etc are often paid late, and there is a stronger likelihood of them been settled quicker if they are in the client’s possession straight after the business transaction has happened. Sending invoices throughout the month and immediately after goods or services have been supplied is also beneficial because the company will have a constant flow of cash coming in to their account.

4. Don’t be afraid to approach and speak to your clients about payment

By law in the UK you have to allow clients 30 days to pay before you can pursue them legally for payment. However, this does not stop you calling or emailing them to ask when you can expect payment. Credit Control Departments should have a robust process in place for this. They can call clients straight after invoices have been raised to deal with any queries or disputes promptly, then call or email them 15 & 30 days after the invoice has been raised to see when payment will be made. No one likes pressing their clients for payment, but this demonstrates to clients that the business is very on the ball with their credit control. After 30 days contact should be made with the client on a daily basis, if this contact is not made it implies that the company doesn’t need the invoice paid all that urgently.

5. Make sure you have invested in the right IT Systems

There are a load of CRM databases and software to assist your business with cash flow and Credit Management, businesses need to ensure they invest in the right ones. Successful Credit Management is about having a clear overview and excellent processes in place to deal with your credit control. In order to streamline the sales to cash process it is very important to use the right software. Specialised Software is much more advanced than say an Excel Spreadsheet. Spreadsheets can contain a lot of data which can sometimes be incorrect due to data entry errors or changes in formulas, which can quickly lead to the wrong information being viewed. If you invest some cash into specific software for your cashflow, so you can say view late payers at the click of a button, then this will ensure you are on top and one step ahead of your clients for chasing payment.

All of the above are easily implemented into a business, with little fuss or cost, this could in turn lead to big changes within the business. Small modifications can lead to invoices being paid on time or more promptly, and in turn easies your cash flow and clients should return to buy more goods and services keeping everyone happy, including the King!

Contact us today

Think we could help your business? For free initial debt collection advice please call us on 0333 800 8919 or contact us online.

How long to wait before instructing a debt collection agency?

We are often asked by our clients, When, is the right time, and how long should they wait before taking action against, their client and instructing our debt collection services?

We say to our clients we wouldn’t let invoices go over 90 days from the date of issue without taking action, as the older a debt becomes the harder it is to recover. However, in most businesses every client is different, and it really depends on the payment history that client has had with them in the past, along with how long they have traded with them.

We were contacted by a new client in Mid-December 2017, who was owed a substantial sum of money from Kleeneze Limited, who have only last week gone into Administration, as reported in National Press.

Kleeneze administration

Our clients had dealt with Kleeneze for several years, and they had always paid them within our client’s payment terms, they were also sitting on a lot of stock which had been previously ordered and was specially made for them. As a long-term relationship of trust and payment had developed over the years of trading, our client was very reluctant to instruct us to collect the debt from Kleeneze as they wanted to keep the relationship intact, but they had not been paid or had any response regarding payment for over 60 days. On further investigation, we uncovered that the company had a number of active County Court Judgments registered against it, this coupled with the fact they had not heard or had payment from them for 60 days, they decided to instruct our services.

Serve a statutory demand

Once we had served a Statutory Demand upon the company we began to negotiate with them on repaying the debt. They were looking to repay the debt over 36 months but we managed to get them to repay the debt over 2 months. We made a full recovery including all our costs on behalf of our client.

The business went into Administration on 12th April 2018, around 6 weeks after we had made a full recovery, so our clients were extremely lucky to have taken action when they did.

Contact us today

Think we could help your business? For free initial debt collection advice please call us on 0333 800 8919 or contact us online.

Hiring a Debt Recovery or Debt Collection Agency in the UK

Many Business or Creditors can be very apprehensive about hiring the services of a professional debt collection agency to recover unpaid accounts. They are often reluctant because they are concerned about maintaining the relationship with their clients, and how recruiting a debt collector could tarnish that relationship.

hiring-debt-collection-agency

Firstly, they need to ask themselves is this client a good client if they are not paying them on time? However, if they find a good debt collection agency, they will understand the relationship you have with this particular client an adapt their approach accordingly. This means that accounts can be successfully recovered and relationships can continue with that client if they still wish them to, if they don’t then a stronger approach can be taken by the debt recovery agency to recover the money, but it should not be one style of collection for every case. You should select the agency you wish to use with care as there are a lot of rouges, fly by nights and agencies out there who will rip you off.

Types of Debt Collection Agencies in the UK

There are many Debt Collection Agencies in the UK, some of these agencies are part or fronted by huge companies, some of these companies are based in the United States or somewhere else in Europe and they have contact centres abroad in places like the Philippines, India, Poland or elsewhere.

These large organisations are focused on a high volume of accounts from a small number of clients, usually high street banks, credit card companies or utility bills. These types of agencies will not deal with a business unable to pass them a high volume of accounts for collection each month or year. The relationship between the debtor and the creditor will be non-existent as the creditor will have already written the debt off and it will be of no concern to them to lose this customer.

Other debt collection agencies deal solely with debt they have purchased, they are called Debt Purchasers. They will purchase the debt from large organisations such as, high street banks, credit card companies, pay day loan companies or utility companies. They will pay sometimes only a penny in the pound or slightly more for the debt which they will now own. They make their profits in the hope that they can recover more money from the debtor than they paid for the debt. The original creditor for the debt again will have no interest in maintaining any sort of relationship with the debtor as they will not want to deal with them any longer.

There are also specialist Debt Collection Agencies to help and support all sorts of different businesses. Some agencies may only operate in specific areas such as construction or Oil & Gas, others may cover every area. These types of agencies offer a very personal service for you as their client and also for the debtor. Due to this they usually have a high success rate, as they can focus their attentions on each individual case rather than dealing with a high volume of cases. They are usually small to medium size Agencies, which again allow them to personalise their services to your needs.

How to Choose a Suitable Debt Collection Agency?

If you are unsure of the agency you wish to use then you can ask the agency to supply references from some of its existing clients. We would recommend that you actually phone the client yourself once you have received the reference from the agency, just to check that it is genuine.

The debt collection agency should be well established and should have been trading for a number of years.

Trustworthy, reputable and professional Debt Collection Agencies will work on a No Collection – No Fee Basis. They will not charge you any “upfront fees” or “registration costs”, this is just a way of extracting money from you and a lot of agencies will take these fees and you may never hear from them again. We have heard of horror stories in this industry of clients giving the debt collection agency sometimes as much as £2000.00 upfront to collect cases up to the value of £10,000. If a Debt Collection Agency has been trading for years on a No Collection – No Fee Basis, then you will know they are excellent at their job as they don’t make any money unless they recover your money from the debtor.

You should ask to see a copy of the debt collection agencies Terms and Conditions before instructing them to carry out a collection for you or signing any paperwork. The agency should have clearly detailed their rates in their Terms & Conditions and there should be no hidden charges.

The Financial Conduct Authority recently took over the regulation of the Debt Collection industry in the UK from the Office of Fair Trading. You should never use a Debt Collection Agency who are not registered with The Financial Conduct Authority.

Each agency needs to obtain the correct “permissions” from The Financial Conduct Authority in order to be permitted to collect debt. They will all be given a registration number by The Financial Conduct Authority which is sometimes found on the agencies website or their stationery etc, but you should ask for the number and check it is genuine on The Financial Services Authority website.

Commercial Debt Collection – Need More Advice?

If you carry out a few quick simple checks then this will allow you to choose the correct debt collection for you, that will have the best success rate and not charge you the earth, otherwise you could be more out of pocket than you were before.

At Debt Collect UK, we have over 35 years experience of providing debt recovery solutions for businesses across the UK and abroad.

For free initial advice & guidance, please call 03338008919  or contact us online.

 

A Guide to Charging Orders

Charging Orders can only be obtained against debtors in England and Wales. If you have recently raised a County Court Judgement against a sole trader or an individual debtor and they have not paid, you can then ask the court for a Charging Order to be raised against the debtor. This is a different way of enforcing your County Court Judgement, other than using Bailiffs, High Court Enforcement Officers and Bank Arrestments etc, which are all other methods you can use if they still refuse to pay.

charging-orders-uk

What is a Charging Order?

If the Sole Trader or individual debtor owns their own property an option open to you is to obtain a Charging Order. The purpose if a Charging Order is to try and secure the monies that are owed to you by placing an entry with the Land Registry, and then essentially making your unsecured debt, secured against their property. So if there is any change in the Title Deeds for the property I.E It is sold or remortgaged, after the Mortgage or any other secured lending has been settled, then you would be legally entitled to any balance to repay the debt owed.

How do I obtain a Charging Order against my debtor?

There are two stages to obtaining a Charging Order –

  1. You will need to apply for a Charging Order on a standard court form. You can review this form using the following links to the Government’s Money Claims Service Website – https://www.moneyclaimsuk.co.uk/PDFForms/EX325.pdf and http://hmctsformfinder.justice.gov.uk/HMCTS/FormFinder.do the number of the form you require is N349. The court will usually consider your application without a hearing, and if they consider everything to be in order an Interim Charging Order will then be granted by the court. The Interim Charging Order can then be registered against the Debtors interest in the property by way of an Agreed Notice (If the property is solely owned by the debtor) or by way of a Restriction (If the property is jointly owned).
  2. The court will then list the Charging Order application for final hearing. At this point the court will either dismiss the Interim Charging Order, if your debt has been repaid, or make it Final either with or without modifications. Once the court has awarded you the Final Charging Order you can then proceed to have this registered on the Title Deeds of the property, thus then making your unsecured debt, into a secured debt.

Please be aware that The Charging Order will be registered only on the debtors beneficial interest in the property. So if the property is jointly owned it will not be registered in anyway against the other owners interest.

Now I have my Final Charging order what should I do?

The main purpose of a Charging Order is to try and secure the debt you have a County Court Judgement for, plus any interest and costs against the debtors property. This means that should the debtor try to sell the property or remortgage it for any reason, if there is sufficient equity in the debtors property once any other charges have been paid such as mortgage or secured loan providers, any surplus sale proceeds can be used to pay your County Court Judgement debt in full or part of it depending on the amount of surplus left once the other secured lenders have been paid in full.

Creditors may have to wait a long time for the debtor to remortgage or sell the property as they will be aware of the Charging Order and may be reluctant to do anything as they would then have to pay you. Another option open to you rather than waiting for something to happen is, if you are satisfied that there is enough equity present in the property to pay your County Court Judgement, you can issue a claim for possession and sale of the debtors property.

The granting of an order for sale is at the courts discretion, however the debtor would need a very good reason as to why the order should not be made and would need to stand up in court in front of a judge at the hearing of the claim. If the judge rejected the debtors claims and granted you an order for possession and sale then you can obtain a writ of possession from the court and send this to High Court Enforcement Officers to take possession of the property. You could then put the property on the market for sale.

The court will normally request that any other charges against the property be paid first, Mortgage Lenders and or Secured Loans from the sale of the property. The costs of selling the property, solicitors and estate agents fees will also be deducted from the sale of the property.

If the property is jointly owned then you will be entitled to the debtors interest in the sale of the property. This is usually 50%, but can sometimes vary. Once all these expenses have been paid then any surplus will be used to pay the balance of your County Court Judgement including interest and costs.

What are the advantages of using a Charging Order?

  1. Your unsecured debt now becomes a secured debt against the debtors property
  2. You can use the Charging Order with other methods of enforcement like, bank arrestments, arrestment of earnings and attachment of goods using Bailiffs or High Court Enforcement Officers
  3. It’s a cheap, quick and effective way of enforcing your County Court Judgement
  4. You stand a good chance of getting paid if the debtor has a lot of equity in the property its very unlikely they would let a sale of the property go ahead as they may stand to lose too much

What to do when they won’t pay

Debt Collection guide for small businesses

Are your clients late in paying you each month & hold back making payment for as long as possible? Or Do they not even bother to pay you at all? Recent research has proven that this can create serious cash-flow problems for small business owners. This blog will give you some advice and also hints and tips to hopefully overcome this issue.

Let the Judge Decide?

Do you rush straight to court or not?

judge-fines-himself

It’s been reported that more and more British businesses are moving towards legal proceedings against their late paying clients, sooner rather than later. Whilst court action is an effective way of recovering unpaid debts, it can be expensive if the debtor does not pay and a solicitor will usually not carry out any back ground checks on the company or the individual if you are dealing with a sole trader to let you know if they have any sizeable assets, have been taken to court in the past, if there are any outstanding charges registered against the company and if they are in the process of going into liquidation or signing a formal agreement to deal with their debts like a CVA, IVA, Administration, Trust Deed or Bankruptcy. All of these are important factors to consider before taking the plunge and raising a court action, we think this should be used as a last resort, rather than the first port of call, as it will also break all relationships you had with that client.

We do think a bold approach is key to a small businesses survival, Late Payments are having deeper consequences than many people realise. Recent research found that 6% of small businesses had to make at least one employee redundant last year as a direct consequence of late payment, and one in 20 were also forced to reduce staff working hours and shifts due to their clients failure to pay on time.

Dangle the Carrot?

Business-people-shaking-hands

If your client is late in paying you we would always recommend that you ask for payment in full, however this is sometimes not always possible if your client simply does not have the funds. Instead you could offer them a repayment plan where you would get your money back by instalments, some money is always better than none. Always get a copy of the repayment schedule agreed in writing, email or letter is fine, this way if it’s defaulted on it can be used as evidence to prove the debt is not disputed and also that your client has defaulted on the agreement and is failing in their ability to repay their debts as they all due. You can also notify them in writing that their debt has reached an unsustainable level and you will no longer be able to provide goods and services unless they agree to the repayment plan. If your clients have some money, they will probably pay you using this method, you will have avoided damaging your relationship with them, and they will think you are doing them a favour so hopefully it will be smiles all-round!

Turn up the heat?

graph

When you think your efforts have failed and you are starting to doubt that you will ever see your money again, it’s time for a more assertive approach. Many businesses large or small will enlist the services of a Debt Collection Agency like ourselves. A word of warning, there are many rouges in our industry, you should go with a well-established, reputable firm who are members of Regulatory bodies like The Credit Services Association & The Institute of Credit Management. They should also not take any upfront fees from you and work on a No Collection – No Fee basis.

The debt collection agency will serve demands and apply pressure on your client’s using debt recovery methods such as, telephone calls, emails, face to face visits. This is often enough for your client to pay up and as they are working on a no collection no fee basis then you are not going to be left with a legal bill to pay if they do not recover anything for you.

It’s really important that the debt collection agency understands the relationship you have had with your client as if we can establish this in our first demand letter that is served then it can increase our chances of making a recovery without the need for any further action. In some cases a custom built letter crafted to that particular client, not a standard template can give your client the nudge that was needed and can preserve the relationship with that client.

Bring the action?

If all of this has not worked then it’s time to consider issuing legal proceedings against your client, before accepting your application the court will expect you to have made a reasonable effort to come to an agreement with your client. You can use a solicitor or some debt collection agencies such as Debt Collect UK can issue your legal proceedings on your behalf. The Government’s Money Claim Online Service www.moneyclaim.gov.uk  makes the process easy and can eliminate the need to use a solicitor so the cost can be limited to just the court fee, if you are in England or Wales. The legal process in Scotland and Northern Ireland is slightly different and we would recommend you visit www.scotcourts.gov.uk  for Scottish actions or www.courtsni.gov.uk for actions in Northern Ireland if you wish to raise them yourself.

Raising Legal Proceedings can be complex and in most instances we would recommend that you use the services of a solicitor who is experienced in Debt Collection, or an experienced reputable Debt Collection Agency who can pass this to a solicitor on your behalf so that your case is watertight with no errors before being submitted to court.

Defendants in England & Wales are required to state if they have any reasons for non-payment within 14 days of the claim or they will face a County Court Judgement. Again the process in Northern Ireland & Scotland is slightly different and the timescales to respond depend on the amount of the debt owed. You will have to go to a court hearing or if you have a solicitor they maybe able to go on your behalf if the debtor denies or disputes owing you the money. Please be warned, defended actions can be very expensive, so if you have an inkling the action is going to be defended you should consider the size of the debt and if it is going to be worth your while pursuing, as once you start the legal process it can be difficult to stop it. If they admit owing the money, or don’t respond you can get the court to order them to pay. If they still don’t pay you will need to have the court action enforced. You can use Bailiffs or High Court Enforcement Officers in England, Wales or Northern Ireland or Sheriff Officers in you are in Scotland.

Hurt in the pocket

p17-cash

It takes time and money to chase outstanding debts, and many businesses end up writing off small debts below £500.00 as they are simply not worth pursuing. They may look to learn from their mistakes and tighten up their credit control procedures to prevent this happening again. You should always consider the size of the debt and your chances of recovery, before instructing any action.

No one wants to suffer in silence

man-tape-mouth

The stress of tight cash flow on small business owners is horrendous and no one likes the thought of having to undertake debt recovery measures against their clients, but why suffer in silence and put your own business and employee’s livelihoods at risk when you have so many other options that you could use to recover your bad debts?

10 SIMPLE STEPS NOT TO BE HIT BY FRAUD

  1. Always treat newly-formed firms and new accounts with suspicion, beware of a new client trying to place a large order for their first or second order
  1. There are certain styles of business names long firm fraudsters seem to favour. Beware of the words, Euro, International, Worldwide, Wholesale, Trading and Distribution, please air particular caution to these types of businesses
  1. If the trader has been a long-established company, beware of rapid change in Directorship, Company Secretary etc. These indicate the company has changed ownership, and may have been hijacked by fraudsters to obtain credit
  1. Use a recognised credit reference agency to check the company or individual out in detail. If the company has submitted accounts to Companies House, check the dates match and the firm of accountants who submitted the accounts actually exist
  1. Check with the landlord of the premises and neighbouring businesses to confirm the length of occupancy.
  1. Ensure receipt of original paperwork – never accept copies or faxed documents. Do not accept hand-written faxed orders for goods
  1. Ask for Trade References, don’t just call the number supplied and ask them to supply you with information. Goggle map the business to check it actually exists and again ask neighbouring businesses how long they have been there for.
  1. When following up a Trade Reference ask unusual questions like, Have you worked with this Company at any different addresses? Have they changed their names? How well do you know them? (If the person at the end of the phone is hesitant they are usually working from a script, which wont include questions like this)
  1. Check the company has a website, and it looks genuine, there should be no spelling mistakes, and should relate to the business they carry out. If the website looks very basic, carry out more checks
  1. Fraudsters very rarely have company email addresses, they are usually linked to Yahoo, AOL, and Hotmail Accounts, if this is the case your suspicions should be aroused straight away

Sales vs Credit Misconceptions

There is a popular misconception that the Credit Control Department is “anti-sales” and they will try to create barriers towards the sales effort wherever possible. This “Sales v’s Credit” attitude is wrong and can only be removed by strong personal relationships and education of the sales staff that a sale is not a sale unless the company is paid for it.

sales-vs-credit

You can improve the process with a full understanding of each others roles, which are very similar in a lot of ways. Both departments want to –

  1. Develop new business
  2. Ensure continuity of that business
  3. Make a profit
  4. Achieve Success

The education process begins with regular meetings between the two departments. Discussions points should include, collection results, problem accounts, new prospects, unresolved queries, frauds and potential frauds, any information shared from Credit Circles or competitors on poor payers, cases that may go legal or to debt collectors and updates on cases that have already been passed to solicitors or debt collectors, and proposed customer visits.

The Credit Controller or Manager of Credit Control should visit prospective and existing customers as regularly as possible with the sales team. This again will cement the relationship between the two departments and give the Credit Controller a clearer understanding of the sales teams daily challenges.

In the same way each new and existing sales person should be given an induction to the role of the Credit Control Department and their key objectives towards profitability.

Selling – bringing home the business – is a tough job, especially in the current financial climate, and the sales team should be congratulated when any new business is received. The Credit Controller’s part in this process is to seek to do business at every possible opportunity. If a customer is deemed un-creditworthy, you should look for alternative solutions like Cash on Delivery, Personal Guarantees, or Guarantors. If the Credit Control Department decides to offer credit on the basis on the Personal Guarantees or Guarantors they should be thoroughly investigated first to ensure that they are credit worthy and also have assets should anything go wrong with the account so they could be pursued to recover any monies owed. Credit Control should never decline the account, without giving reason to sales.

The most important point to note is communication. Credit Control should always keep the sales department informed of any key changes to their accounts whether it be good or bad. Credit Control should never forget that the account also belongs to sales as well as them. The sales team are extremely valuable to many credit processes including collections, risk assessment and gathering information. The setting of clients terms and credit limits will also become an easier process when a good relationship exists between Credit Control and Sales staff. Monthly, or weekly meetings should be held between sales and credit control and all of the points in paragraph 3 should be discussed, documented, and action points should be noted and actioned before the next meeting. This adds to the commitment, trust and overall communication between the two departments.

If the sales team is treated professionally and with confidence, Credit Control will gain their trust and respect in their options, and future dealings will become easier because you are working together. Sales people and generally positive, driven people, and credit professionals should be equal to this attitude. The stuffy, blue suited, office bound individual is a thing of the past. The Credit Control department is the link between sales and finance and makes a real difference to corporate profits and liquidity. This should not be overlooked at any stage.

The Credit Control department should use positive language when addressing the sales team. They should not talk negatively about “blacklists” or “stopping supply” even though this maybe their only course of action left. Credit Control should use other phrases focusing on positive action and try to be pro active about highlighting potential issues with sales before they arise. Credit Control should praise sales on their successes and focus on how their customer skills and strengths can help Credit Control achieve their objectives.

Without sales, the company would not survive. Without money and cashflow, the company will not survive. Allowing credit accounts to clients is an incentive for sales to win business. This incentive comes at a cost, and the role of the Credit Control department is to keep the cost to a minimum by collecting, communicating, and minimising bad debt, and also creating a fantastic environment for clients that will ensure repeat orders for the sales team.

Best Ways to Approach Collecting Your Ledger – Telephone v Letters

letter-telephone

The telephone can be a very powerful tool and without question is the most effective method of collecting outstanding debts, but you must consider the time element involved in calling everyone in your customer base.

Ask yourself two questions –

  1. How many customers do you have?
  2. What are the values of your debts?

Based on the answer to these questions, you can structure your overall approach to the collections.

If your ledger consists of 10 – 20 high value accounts, ensure you call them all (or even visit them) personally. These are key accounts to your business and should be treated well in order to establish sound relationships with your clients and ensure prompt payment of the accounts.

If you have a good working relationship with a key client, do your homework, by building rapport with them. For example, if they tell you personal information about themselves (birthdays, anniversaries, names of children, or the area they live in) note them on the account and use them in future conversations. It seems simple, but this will highlight to the client that you are generally interested in what they have to say, which builds a better relationship with them, as well as keeping you a step ahead should you ever need to make a collection from them.

If your ledger is made up of 1000 – 2000 low turnover accounts, then it would be impractical and not a good use of your time to call them all personally. A structured letter cycle approach should be adopted. Please see my previous blogs Reminder Letters for Invoices Part 1 & 2 for advice on this.

Most commonly there will be a mixture of phone calls and letters. You should prioritise your workload to find a balance, ensuring your high value, high risk and prestigious clients always receive a personal call, whilst sending letters, faxes or email to your low value, low exposure customers.

Get it Right from the Start

The chances are if an account is not set up or chased properly at the point of opening, then its likely that it will fall into arrears. Make sure the correct checks are carried out when opening the account –

  1. Do you have a credit application form completed?
  2. Have you checked and called the telephone numbers supplied and do they relate to this particular client? (Always ensuring you have more than one number, and a landline as well as a mobile)
  3. Have you checked the references supplied on the credit application form? Don’t just telephone the numbers supplied to check this out, check on Google maps etc that the addresses and companies supplied for the references actually exist. Fraudsters will supply you with fake address and company details for references and the number you call will probably just go straight to them or someone working with them and they will just tell you what you want to hear in the hope that you open the account and send them the goods.
  4. Credit Check the Limited Company or individual and arrange a credit limit and payment terms based on your findings

Remember, how much profit can be lost from overdue accounts or bad debts, so its imperative you get this correct first time.

If there is any ambiguity in your contracts or payment terms, it may severely hinder your future collection efforts. If your quotes, order forms, invoices and statements send the wrong message or information, the confusion may be costly.

Ensure your business is not just selling at any cost, and expecting to pick up the pieces. If you think a particular account is high risk, look at your costs and factor in a higher profit margin where possible, so if the account goes bad then at least you will have recouped some of your losses already.

If you have a high account query rate, and you are experiencing consistent slow payment, there will usually be a reason for this. Its your task to ascertain the root cause of this reason, and resolve it.

A few very important points to remember and follow whilst collecting –

  1. Always be polite and communicate effectively
  2. Be persuasive and persistent and do not be ‘put off’ easily
  3. Do not waste time – don let anybody waste your time – do it now
  4. Use targets and spreadsheets to focus your collection activity

Remember that payment is as important a part of your contract as the goods, services, sales, dispatch and pricing policy. If you provide the best service to your customer, you should expect payment in the same manor.

Set Your Plan of Action

Firstly, ensure you call at the right times of day. 9.30 – 12.00 and 2.00 – 4.00 are generally the best collection windows, avoiding lunch and early departures. Try to arrange your day around these periods.

You should set yourself regular cash goals to target and monitor your collection efforts.

Remember to use the 80/20 principle. This will bring the majority of the cash your business requires. Use days Sales Outstanding (Debtor Days) to set yourself (or your team) cash targets for the month ahead, and adopt rewards and incentives (however small) for your key achievers.

Place emphasis on any ’90 day overdue’ balances (including problematic debts) to ensure they don’t become uncollectible. Memories become very distant as time goes by and its your job to ensure an account is never outstanding for too long.

Recovery agents have collected debts aged 3 years and over just by picking up the phone and communicating. The offending company simply told them ‘nobody has ever asked for it before!’ although I do understand these instances are rare it is sometimes worth chancing your arm to see what happens.

Use your sales ledger system effectively to produce relevant reports necessary to assist your collections (i.e an aged debt report or detailed invoice analysis), and keep credit control history logs for all customers up to date, with detailed notes so you know exactly what was said in your last communication with them. This can then be recalled the next time you speak to them.

Send your paperwork out on time (i.e invoices, statements, and reminder letters) and ensure you are following up any queries or issues with accounts .

Reminder Letters for Invoices – Part 2

The second part of our series looks at the final stages of payment reminders.

3. Example of Deteriorating Payments Letter

To be sent when payments from a previously prompt-paying customer have started to deteriorate.

Dear

Amount overdue:
Invoice No:
Date:
Payment terms:
Credit limit:
Account:

You have in the past settled your account promptly but we notice that, in recent months, payments have been received outside the agreed terms and we wonder if there is any special reason for this. Continue reading

Reminder Letters for Invoices – Part 1

Many companies are afraid in the current economic climate to chase their clients for money in fear they may lose them to a competitor. Please remember we are all working to make money and a good customer is a paying customer.

If you have issued an invoice and one of your clients has not paid this its your responsibility to call them to find out exactly what is going on. There maybe a genuine reason for them not paying you and it shows you are on the ball and will not be fobbed off with excuses when it comes to getting paid, even you’re biggest and best clients should understand if you chase them for overdue invoices and you should not be afraid to do this.

The first part of our series looks at the early stages of payment reminders. Continue reading