The Credit Controller – The Unsung Hero
“What’s wrong with my business? I can’t understand it.” This is a comment I often hear from many business managers and owners. They know there is something wrong. But they have spoken to the sales staff and production who assure them all is well. “Is my customer really happy with us or are they suffering any on going problems that are not being identified as they should be?.”
An unhappy client will generally withhold payment to resolve a dispute they may have. The dispute may have fallen on deaf ears through other departments of the company over a period of time. It is only when the company finds the account unpaid that it suddenly becomes very proactive with the customer to recover the over due account in the normal credit management manner. This can further alienate the customer, often to a point of no return.
The many reasons for a business down turn can be for a multitude of things. But many of these problems are hidden within the company’s systems and procedures, or by the staff themselves.
Have you ever thought of asking your credit manager? “Ridiculous” you say “what would they know about our business. They just deal with the cash.”
If business management asked the correct department (i.e. the credit department) they would know where and what problems exist within the company. The credit department is often the unseen sales department that constantly tidies up the finer details that sales, marketing and all the other departments don’t attend to or forget about until it’s time for payment. It is then when the finer details of an agreement present themselves via payment not having been received and will eventually end up in the credit department to be resolved.
When a customer rings up the credit department personnel screaming abuse down a telephone about the debt recovery letter sent to them, these customers do not care whether the credit person on the other end knows anything about any problem they may have. But it is these people that are held responsible by the customer and will be blamed for allowing the situation to have escalated to where it is.
It is often this department that is left to sort out the residual problems or unattended to error in the process of any business to enable payment to be obtained otherwise, it will become bad debt and could be written off. In addition to this, the one bad transaction could destroy the years of happy customer relationship the business has spent good money building.
If handled professionally, the credit department can often win the customer back onside by working with them to resolve situations that occur outside of the normal procedures or their control.
How long is it since you really looked at the value of your credit team or credit manager? This team or person comes in contact with every department of the business for a huge variety of reasons. The credit department are constantly resolving problems for the business so they need to liaise with all other appropriate departments to resolve any situation as well as maintaining the company cash flow and customer relationship.
It should be remembered that this generally under-resourced department is also charged with defending the company from the unscrupulous. The credit department has one of the most demanding positions in the company, a position that most people would not readily take on.
Why do most senior management constantly ignore this department until there is a fluctuation in the receivables or debtors ledger? Why do senior management then go head hunting for the culprit in that department when more than likely the problem originated back in sales, marketing or production?
The credit department can be a wealth of knowledge both internally and externally to company management. Not only do these personnel have their own internal networks, but also they will have external networks that can be utilised in protecting the business. In addition to this, there is various legislation that must be abided by in any business. The credit department need to be very conversant with this. However, management will most likely go and consult with their company solicitor at considerable cost. Moreover, the solicitor probably has no idea how this may affect the daily activity of the company or whether what may be suggested it is even practical in the applicable business situation.
Before you run out and see your solicitor about improvements to documentation, check with your credit department to ensure that not only will it be functional, but enforceable. Resource needs to be added to this department even if it is for short-term projects to ensure consistency in cash flow while it is restructured to operate more efficiently. Once efficiently operating with the correct resource provided to the department, on most occasions it is likely the department will perform to a point where it will maintain or reduce costs once a constant predictable level is able to be maintained.
The credit department or accounts receivable will often be able to tell you if there are sales people who constantly upset your customer by quoting incorrect rates, pricing or discounts, sometimes providing incorrect or faulty product or other aspects of the business that may have left the customer unhappy. When a situation has deteriorated to this level it is common for the customer to take the stance that they do not feel they have an obligation to pay on the basis of “if you don’t care why should I?,” and “it is now your problem because I am not going to pay for it until someone takes me seriously and listens to my problem.”
Large amounts of credits being passed by the department is something that always needs investigating rather than to be continually processed by staff in a mechanical manner. Such occurrences are a sign something is clearly not working, but there is a need to have someone in authority to ask the question “why is this occurring?”and act upon it. The credit personnel could tell you immediately of any problem as they are the ones that sort every problem in the business because if they don’t, the cost to the business is a lost customer. In addition to this, it is highly likely you will lose further revenue while the debt remains unpaid and then spend further expense try to recover your funds through the court process.
The credit department is rarely given the recognition it deserves. How long is it since management of the company recognised the outstanding role that this department performs daily for the business?
The credit personnel are every department in your company. They have to be knowledgeable about every aspect of the business to know how to discuss these matters of dispute with the unhappy client. Is it not time to give some credit where credit is due? (Excuse the pun).
DEATH OF THE PREPAY SYSTEM
Debt Collection Vouchers, are they good value?
Some of the prepaid debt collection voucher systems that are currently available on the market have now become expensive and do not serve the economic purpose that this type of service was originally designed to perform. These voucher systems often require prepayment (usually in lots of 10) but these can expire before actually being used or lost, and it is quite a lump out of the cash flow for a business. The original concept was introduced into New Zealand by one of our company directors but in a recent review of the market it was realised these current systems often no longer provided value to the user. As a result DebtForce reintroduced the LetterAction service at a simple $35.00 per debt for debts under $1000.00 with NO COMMISSION applying to the funds recovered. Interest and costs can also be included in the demand so if payment is made the collection is FREE of cost.
The high standard DebtForce service is applied to these debts with each debtor being contacted directly where possible. A night team of collectors is available to deal with the more evasive persons.
This is a pay as you use system and is charged to the clients account as the service is used, No Prepay.
The savings to the business are considerable with the cost of a recovered debt of $1000 is less than 3.5% in real cost.
No debt should be written off without attempting to recover it. Using this
service enables the user to adapt a more aggressive policy to their smaller debts which are now economic to pursue instead of writing them off. It also provides clear evidence of pursing the debt to IRD for write off purposes
XERO
|
|
FREE DEBT COLLECTION FOR XERO USERS (conditions apply)
Have combined to provide a new Online Debt Recovery Solution through the existing XERO accounting package.
No other accountancy package offers this unique feature where the user has full control of their outstanding debts online throughout the process without the worry of having to do the work themselves.
For those looking for an all round business and personal accountancy package, the Xero cloud computing based solution is constantly evolving to provide the customer with the most complete up to-date range of accountancy related services possible.
There is no longer any need to purchase an expensive accounting package and pay for yearly updates. The Xero package is just one monthly fee and everything is provided (including updates) over the internet just like your banking might be, all you need is the computer.
The key features of Xero include automatic bank account feeds, invoicing, accounts payable, expense claims, fixed asset depreciation, standard business, management reporting and now debt collection.
Xero can automatically import bank statements from thousands of banks globally, including the major banks in New Zealand, Australia, United Kingdom and USA. The solution is available globally and provides localized versions for New Zealand, Australia, and the United Kingdom.
Much of Xero’s success has been its ability to enable customers and third party software vendors to integrate external applications with Xero. DebtForce have worked with Xero to create an API (Application Programming Interface) that allows the user to list all of their debts by age and decide which ones they would like to go out for collection. Once decided, at the push of a button the information about the debt goes to Debtforce for action that day and for reporting to the client as the matter progresses.
The debt collection service offered not just one service but three different services to provide cost effectiveness relative to the value of the debt. It is very professional based on 30 years experience and is fully supported by a very active collection team including a practicing Solicitor. The service is results based so DebtForce have to be successful to get paid. XERO customers receive a preferential low rate on any debts sent for collection through the XERO program.
If you are interested in saving time, money and stress simply click this link to be taken our xero client page or call Steve at our office on 0800332836 to discuss your debt situation and get your cash in today at no obligation or becoming a Xero user and enjoying all of its benefits.
Don’t sue George when Harry owes you the money
IN FARAWAY Debtland, there is a place where you’ll find the bones of people who have chased the wrong debtor. It is impressive to look at the bones. There is a mountain of them. Unless you’re careful, your bones will make the mountain a little higher.
Why? What’s the problem?
Thousands of people commence proceedings on someone that’s simply not involved! It may take a long time to find that out. It may cost them thousands to find out. And it’s all money lost. They can’t get back a penny.
If you’re handling the legal action yourself — and that’s what we’re talking about – then make sure you go after the right debtor. If you start on the wrong foot, even if you bring in a lawyer or debt collection agency later, they probably can’t fix things. You’ll have to start over.
Here are some of the ‘people’ you can sue:
An individual. Mary-Sue Goodheart. Or Doctor Xavier McPherson. You sold the person something, or did the person some service, for an agreed amount of money. And the scoundrel didn’t pay. Right. That is who you are chasing for monies owed.
A sole trader. A sole trader may have a trading name: Black Hole Earthmoving. Forget it. Just go after the person behind it — the individual.
A partnership. Dangerous waters. There can be two partners, or twenty — or sometimes thousands (as in the big accounting firms). You probably only dealt with one of the partners. Or even just someone who works for the partnership. But someone there owes you money. The safe thing to do is ensure you know the details of everyone associated: all the partners as a group, and each of them individually, and also the guy you actually dealt with (if he isn’t a partner and already on the list anyway). That way you’re covered. No one who might be responsible (or own something you can seize later) can wriggle out of it.
A company. If you are sure that you have really been dealing with a company as such – maybe by running a company search in the first instance.A company has a life of its own, legally. It’s like a person who can’t die, even if the directors die (they are just replaced by other dispensable mortals). It’s true that you can kill (liquidate) a company, but you don’t do it by killing the people who run it. Legally, a company is very real. It can sue. You can sue it. The company itself can owe you money, no matter how the people who work for it may come and go.
A trust. There are a lot of these around. For example, : “1234 Ltd as trustee for the James Heath Family Trust”. Trusts usually have a trading name tacked on. In a trust, its trading name is “J&E Copywriting.” If you sold something to J&E Copywriting, and you got no cheque, who should you sue? The answer is: that whole long name. You can tack on the trading name too, but it doesn’t matter. On the documents you might also use a few abbreviations: “1234 Ltd ATF James Heath Family Trust TA J&E Copywriting”.
Technically, you could just commence proceedings against 1234 Ltd, but that gets messy because 1234 Ltd might be doing something in addition to acting as a trustee. It could be acting as a trustee for several different trusts, or it could be trading in its own name — selling used 747s, for example. It might take a lot of sorting out in court to determine which of these trading entities actually owed you the money. Better to be clear, if you can. It will be cheaper.
There are other wrinkles to this as well. The trustee of a trust doesn’t have to be a company. It might be two or more people, acting as trustees. For example, if my Family Trust got fed up with 1234 Ltd as a trustee, the Family Trust could chuck out 1234 and appoint new trustees: my wife and her brother, say.
If all this doesn’t get you worried, it should. It explains why lawyers and GOOD debt collection agencies are so careful — right at the beginning — to try to pin down exactly who owes you the money. If a company is involved, or seems to be, the agency or lawyer will do a search to see what the company structure is. He will also trace through and see who is behind a business name.
Even so, it may not be clear who the debtor really is. Is it cunning Mr. Bloomhardy himself, who bought those 500 bags of cement from you? Or was it really his company, Bloomhardy & Foolhardy Ltd? Nothing was put on paper. And your recollection of what Mr. Bloomhardy told you, and what you told him, is getting hazy.
This uncertainty can seem amusing when it happens to someone else.
But beware: it’s no fun at all when it’s your money and you chase the wrong debtor. Be careful.
How to avoid problems – cheaply
First, check them out
IT IS ridiculous for anyone smart enough to be in business not to make routine credit checks. There is no point chasing a debtor with a summons if there’s nothing there. You’ll get plenty of ‘legal action’ — but you’ll pay for it all yourself. The debtor won’t be touched.
Look under ‘Credit Reporting Services’ in the Yellow Pages. Call a couple of these services. Get their literature. Then join one. You pay an annual subscription (in the very low hundreds) and a small fee each time you want to find out about someone (whether a person, or a business). And I do mean a small fee: less than $30, usually.
On an individual, you can get information like this:*
- Driving license number and date of birth.
- Name of employer, and previous employer.
- His address, address before that, and before that.
- Companies he is a director of, and former companies.
- Credit services, banks etc. that have been enquiring about him, and when.
- Any writs and summonses served, and whether he has had any court judgments against him.
- Default information, including written-off accounts and accounts referred to a collection agency.
- Which mercantile agents have made enquiries about the person.
On a company, you can get information like this:
- Trading address and registered office.
- Incorporation details, issued shares and paid capital.
- Details of directors.
- Writs and summonses served and outstanding court judgments.
- Default information, including written-off accounts and accounts referred to a collection agency.
- Which mercantile agents have made enquiries about the company.
So if someone who asks you for credit is in financial trouble, you’ll know it before you start doing business. You can tell him: sure, send us the $6200 and you can have the (whatever it is). If he huffs and storms and threatens to take his business elsewhere, let him. Let one of your competitors have the loss.
Now I realise it’s easy to say, “Keep your credit tight”. I know the temptations. The sales staff are selling, selling. Maybe business isn’t too good, and you really want this sale. But I repeat: the easy way to get difficult debtors to pay is never give them credit to start with. Money up front, or no sale.
But even if your credit checks are squeaky tight, you still won’t avoid all problems. A debtor can ‘go bad’ for a hundred reasons. He can be a first-rate customer for years, then something slips. Instead of paying in 30 days, all of a sudden he drifts out to 45 or 60. Or maybe a cheque will bounce. Or something else that’s not just quite normal. This should start to ring little bells. You should find out what the problem is. Use your credit reference agency. If that doesn’t show any ominous signs, then phone the customer. You’re entitled to find out what’s happening — you’re providing the customer with credit.
The customer might say, “Accept things as they are, or we’ll go somewhere else.” That can put you in a quandary. Maybe he’s spending $10,000 a month and it’s an account you don’t want to lose. But really, you might go for three months without getting paid. Maybe $30,000. And if he doesn’t pay in the end, it means you might have to find $300,000 in new sales to make it up.
Another suggestion: treat your sales and credit people as equals. Pay them the same, push them the same. Invite your credit manager to some of your sales meetings. If your credit manager has guts, he might say something like, “You bastards out there make the sales, but I can’t get the money. Don’t you eyeball them? Look, so and so is paying on 90 days now. Is he earning a quid? Or is he slow as hell out there, with no contracts? Is there lots of stock around? Let me know. You might try picking up a cheque too, next time you’re there.”
Then get it in writing
THE MORE you get in writing, the stronger your hand will be if the debtor goes bad. If you have to go to court, your case will be tight. (But usually, with lots of signed documents in your hands, you probably won’t need to: the debtor will realise his position is too weak.)
I know this isn’t a popular topic. All that paperwork hassle — for what? It feels like driving with the brake on. But I wouldn’t be doing you a favour if I didn’t at least mention ‘credit management’ (the right term for a system for checking out your customers, and keeping all the documentation straight).
How much documentation you use — and what sort — depends on the size of your business, how much bad experience you’ve had with debtors, how much you know about credit management, how tolerant your customers are about signing papers (including directors guarantees), and a hundred other things. But whether you know it or not, you already have a credit management system: it might be good, or less good, or downright lousy — but it’s there.
You may be relieved to know that I’m not going to mention anything else about this topic. (As I said, I’ve found that people really don’t like to hear about it.) But that doesn’t let you off. If you get your credit management wrong, it will come back and thump you. If you get it right, you’ll get your money almost every time. But to get it right, you may need help: if you feel shaky on all this, you can contact us here at DebtForce Limited to assist.
