I’m often asked as a consultant Debtologist just what are the golden rules for good credit control?
How can you avoid debtors?
The answer is You can’t but if you:-
A) Carry out due diligence on each and every order.
B) Have a firm credit control policy.
You can minimise your risks.
So what is a Due Diligence Check List?
Terms & Conditions of Trade – Are your Terms & Conditions adequate? Who designed them? What are your settlement terms: 7, 14, 21, 30 days?
Can you claim interest on overdue accounts?
Can you charge your late payer for costs incurred in the collection of the overdue invoice?
Are you protected against damage caused in the fulfilment of your duties?
If the answer to these simple questions is NO, contact a specialist agency.
Account opening forms:
Do you know who is legally responsible for settling your invoice?
Is your client a sole trader, a partnership, a single ltd company or part of a group? Where should you send your invoice? If you don’t have a working account opening form, contact a specialist firm.
Simple 30 day credit control rules:
If your terms are 30 days, on day 14 phone the client and ask two questions.
Question 1: were they happy with the order. If they say they weren’t, you have time to put it right. If they are happy, ask Question 2: When am I going to receive the payment?
Slow paying Accounts.
Never be afraid to ask for your money. A non payer is not a customer, they are a drain on your bank account.
Day 21 Call the client and confirm that the account will be settled, or if not why not? If the client moans, just say “Mary” in accounts is nagging you. If no call is made send a final demand. If your client calls and moans about receiving a letter blame “Mary” in accounts!
Day 37: If payment has not been made, PHONE the client, say “Mary in accounts wants to send the account to the collection agency but you wanted check what the problem was”
Day 40: If payment still has not been made, write to the DEBTOR stating that if payment is not made within 7 days the account will be passed to your preferred collection agency. The letter should be sent by “Mary”
Day 45 send a third party debt collection letter.
Day 55 send a final demand
Day 65 send the account to a firm of debt collectors
For more information please visit our website www.deanemcollections.co.uk
Sunday, 11 April 2010
Tuesday, 6 April 2010
How The Titanic is the story of today's SME.
Are you Jack or Rose?
or
How the Titanic is the story of today's S.M.E
As a public speaker on debt collection I often try to relate credit control & debt collection to the ill fated liner The Titanic as there are numerous similarities between the launch of The Titanic and most S.M.E's.
According to history when they designed the Titanic, the brief was to create the most luxurious and fastest liner of it's age. However, the designers were so intent on following the brief they forgot to check if the watertight doors shut, a mistake they were to regret when the boat met an iceberg. The rest as they say is history.
or
How the Titanic is the story of today's S.M.E
As a public speaker on debt collection I often try to relate credit control & debt collection to the ill fated liner The Titanic as there are numerous similarities between the launch of The Titanic and most S.M.E's.
According to history when they designed the Titanic, the brief was to create the most luxurious and fastest liner of it's age. However, the designers were so intent on following the brief they forgot to check if the watertight doors shut, a mistake they were to regret when the boat met an iceberg. The rest as they say is history.
Unfortunately, most businesses today have the same deign faults. When we launch a business the intention is to launch the best. Their business like Titanic is going to break records unfortunately, like Titanic they often have a flaw in the blueprint. In the case of the Titanic it was those watertight doors in business it’s called poor credit control.
If you don’t batten down the hatches and ensure that your customers pay their invoices within the agreed terms your business, like the Titanic will sink to the bottom of the ocean. However, unlike Titanic there will be no romance about your business sinking.
A further analogy can be found in the film of Titanic and only you can decide which character you are. You can either be like Jack, who despite being very brave & heroic ultimately ends up, like the Titanic at the bottom of the ocean. Or you can be like Rose who clings on to a piece of drift wood and was finally rescued by a passing life raft. In real life a debt collection agency should be seen as the life raft.
To find out more about Debt Collection visit our website at:
www.deanemcollections.co.uk
If you don’t batten down the hatches and ensure that your customers pay their invoices within the agreed terms your business, like the Titanic will sink to the bottom of the ocean. However, unlike Titanic there will be no romance about your business sinking.
A further analogy can be found in the film of Titanic and only you can decide which character you are. You can either be like Jack, who despite being very brave & heroic ultimately ends up, like the Titanic at the bottom of the ocean. Or you can be like Rose who clings on to a piece of drift wood and was finally rescued by a passing life raft. In real life a debt collection agency should be seen as the life raft.
To find out more about Debt Collection visit our website at:
www.deanemcollections.co.uk
The Three Stages of a Debtor
I am always being asked if there are any warning signals that you should be aware of when offering credit to your customers. With this information you should be able to avoid the need to instruct a debt collection agency.
Stage 1: The owner has the best of intentions.
The company is starting to experience some hard times but genuinely thinks it is only temporary. At this stage, the owner still has a positive outlook and wants to try to do the right thing when it comes to paying his creditors. Unfortunately, he cannot pay everyone in full so he works out a partial payment arrangement with most of his suppliers.
When a debtor is in Stage 1 they begin to act a little different as the signs of poor cash flow start to show.
Stage 1: Some Warning Signs
Your customer wants to make partial payments in an effort to get you paid. It takes you two or three calls before someone will call you back about your invoice. They say “the cheque in the post” when it isn’t.
Remember, during this stage the debtor thinks everything is going to be ok so his attitude is usually good and his excuses sound genuine.
Unfortunately, Stage 2 is looming:
Stage 2: Warning Signs
Cash flow is worse and the bills are getting out of control. Things go from bad to worse and he simply can’t afford to keep up with his payment plans. He hasn’t given up though, so his excuses still sound genuine; but they are getting more and more creative every day.
Now he has to prioritize. When he finishes a job or gets paid from one of his customers he sits down with all of his bills and simply puts them in priority from MUST PAY to NEED TO PAY then down to WON’T PAY. He is now officially in survival mode. Some of the bills that fall into each pile are:
Where do you think you fall on his priority list?
Stage 3:
The debtor’s situation is hopeless. He can’t afford to pay anyone anything at all. No longer do even his preferred suppliers receive payment. When he arrives at stage 3, the company will be closing its doors shortly and is going to file for bankruptcy/insolvency. Right before he enters this stage, the warning signs are clear and easy to read:
Stage 3 Warning signs
Stops returning calls, all partial payments cease. No more excuses, just states, “I can’t pay you” Since the company doesn’t have any cash flow, the time to use a collection agency has long passed.
Simply put, this debt is generally uncollectable now is the time to call a Debt Collector.
To find out more about Debt Collection visit our website at:
www.deanemcollections.co.uk
Stage 1: The owner has the best of intentions.
The company is starting to experience some hard times but genuinely thinks it is only temporary. At this stage, the owner still has a positive outlook and wants to try to do the right thing when it comes to paying his creditors. Unfortunately, he cannot pay everyone in full so he works out a partial payment arrangement with most of his suppliers.
When a debtor is in Stage 1 they begin to act a little different as the signs of poor cash flow start to show.
Stage 1: Some Warning Signs
Your customer wants to make partial payments in an effort to get you paid. It takes you two or three calls before someone will call you back about your invoice. They say “the cheque in the post” when it isn’t.
Remember, during this stage the debtor thinks everything is going to be ok so his attitude is usually good and his excuses sound genuine.
Unfortunately, Stage 2 is looming:
Stage 2: Warning Signs
Cash flow is worse and the bills are getting out of control. Things go from bad to worse and he simply can’t afford to keep up with his payment plans. He hasn’t given up though, so his excuses still sound genuine; but they are getting more and more creative every day.
Now he has to prioritize. When he finishes a job or gets paid from one of his customers he sits down with all of his bills and simply puts them in priority from MUST PAY to NEED TO PAY then down to WON’T PAY. He is now officially in survival mode. Some of the bills that fall into each pile are:
- Need to pay (Unlikely to pay). Rent, payroll, utility bills, top suppliers that they cannot do without.
- Should pay (But will not). Advertising invoices, office supplies, middle range suppliers of products that they can get elsewhere.
- Will never pay. Memberships, subscriptions, low tier suppliers they do not need, suppliers with toothless collection policies, small balances that they know no one will ever pursue.
Where do you think you fall on his priority list?
Stage 3:
The debtor’s situation is hopeless. He can’t afford to pay anyone anything at all. No longer do even his preferred suppliers receive payment. When he arrives at stage 3, the company will be closing its doors shortly and is going to file for bankruptcy/insolvency. Right before he enters this stage, the warning signs are clear and easy to read:
Stage 3 Warning signs
Stops returning calls, all partial payments cease. No more excuses, just states, “I can’t pay you” Since the company doesn’t have any cash flow, the time to use a collection agency has long passed.
Simply put, this debt is generally uncollectable now is the time to call a Debt Collector.
To find out more about Debt Collection visit our website at:
www.deanemcollections.co.uk
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