Successful Debt Management

Is your business cash flow secure? Can a professional debt collection company offer you peace of mind by securing your cash flow?

We all understand the principle of business is to provide goods or services to a group of chosen customers or, more often, those customers that choose you. Along with that first principle is the belief you will be paid promptly when agreed and quite rightly so, but so often there is a percentage of any company’s clients that simply do not.

Cash flow is made up of prompt customer payments for those goods or services provided and without it the business is immediately in danger. After all, we are talking about the cash in the business that allows for daily running and accurate projections for the future of its business growth. Every debt, no matter how small, is important to profitability, particularly in times as they are right now.

I have been in the credit, security, and investigation industry for over 30 years, working for some of New Zealand’s largest companies. Yet it never ceases to amaze me that businesses do not seem to appreciate that they need to protect and secure the unseen cash in their debtors’ ledger. It’s the unmanaged, unprotected back door where the unseen losses can occur.

The appointment of a professional debt collection company to assist in the management of this critical aspect of the business can save thousands of dollars and litigation costs. The skill level available within these organisations today should not be underestimated .Think about it, the resource in a debt collection company generally far outweighs the resource you will find in a solicitor’s office where a debt collection matter may be handled perhaps once a month or less.

A debt collection agency deals daily with complex debt issues at a commercial level. It is their core business, so it is logical to talk to an organisation with years of practical experience and which can better assist in the delicate resolution of large sums of money, using options not normally considered.

Generally, they have seen most situations and can give you the answer immediately and in most instances at an extremely modest cost. Also, it should be remembered that a solicitor gets paid for time and attendance irrespective of the result.

Solicitors could spend hours researching the case at your expense whereas most agencies get paid on a commission basis usually on the amount they recover, so they have to work a lot harder and often be a bit more inventive to obtain acceptable settlements for all parties concerned, and without litigation where possible. I don’t know of too many solicitors who would ring their clients’ debtors at night to find out where your money is.

Too many businesses are influenced by sales figures and customers who they consider are good customers, based on those sales figures. Often a closer look at their credit history, and a review of how long it took for the customer to make payment and how much of what was purchased ended up as credits, it could reveal that the customer is only marginally profitable to them, if at all.

In addition to these operational costs, are the sales costs that are now losses and which most likely include commissions that may have already been paid to a salesperson. Customers should also be judged by their credit history as well as their genuine sales – just ask the person who manages the receivables ledger, they can be a mine of information. If you want to know who your good salespeople are, or your worst branch or customer, they usually can tell you off the top of their head.

When debts do become due, they can quickly get beyond the resources of many companies to collect themselves. There are many ‘professional debtors’ who know the laws and Acts that govern business today. These individuals are constantly looking for loopholes in a company’s procedures that enable them not to have to pay accounts often worth thousands of dollars. They often succeed due to lax procedures in the credit process to start with, which in turn makes it difficult to prove a case in court if necessary. However, the introduction of a third party professional collection agency immediately puts a debtor on notice that a company is serious about the recovery of overdue accounts.

But, in any event, the effective recovery of debts is more than just telephoning a debtor and waiting for the money to roll in. Particularly during these hard times, debtors can be  evasive and all too ready to play the game of playing the cost of chasing them, against your will to do so, and the value of the debt. They aren’t sitting around waiting for your call but  will use every trick they can in the hope the collection agency will give up and go away.

People skills, psychology, and timing all have a role to play and they are an important part in the resolution process provided by skilled collectors. Much of the debt received by DebtForce is settled by working through issues with the debtor, while maintaining what we call ‘debtor dignity’ which in most instances results in obtaining a settlement in a timely manner culminating in an enforceable agreement. Collectors often build a relationship with the debtor that can also assist the collection process and encourages them to meet their commitments.

Should the agreement not be adhered to, then enforcement by way of legal action can be considered, but it is always a last resort. When required, it is conducted in consultation with the client and the DebtForce in-house solicitor through all stages.

When a client has a problem, the first thing we do is look to the documentation. It often tells us what options are realistically available to resolve the situation and what level of approach is to be taken. But often there is no documentation or it is out of date, or unsigned. Many think that putting something on the back of an invoice or statement makes it legally binding, but it just does not stand up in court.

The minimum we like to start with is a credit application and hopefully it will be signed. We then have something to look to that identifies the legal party you have conducted business with which will give some direction to the correct legal procedure against that particular entity.

The law is an expensive process and a slow one, so it is essential not to issue legal proceedings unless there is a good case to answer and it is important to get it right first time.

There are good and bad agencies in our industry like anywhere else. Do your homework and check out your proposed agency properly. I have had to chase a few former debt collection agency owners to recover money they had collected and not returned to their client. Honest agencies should be reporting to you the same day they are paid. 

It is important to remember when selecting an agency for your business it is not just about price but professionalism and competency as well as the additional support they can provide, so treat the appointment of your agency carefully. Remember, they do represent your company and the last place you want to find your company is on the front page of your national newspaper as a result of something your agency has done.

It has to be accepted that there will always be customers that will slip under the radar either through error at the business end, or exploitation by the debtor, but the objective is to minimise them and when it occurs, immediately instigate your plan of recovery action.

If you need help assessing your credit policies and documents or to recover overdue accounts contact DebtForce now at 0800-332 836 or email enquiries@debtforce.co.nz or visit www.debtforce.co.nz

This article was also featured in the May/June 2009 issue of Security Magazine.