How To Get Paid on Time and Collect Old DebtWorkshop

Presented by:Lindsey Van Der Westhuizen

© in partnership with

WELCOME TO THE

Welcome and Introductions

Debt Recovery

Effective Credit Control

Workshop Evaluation

AGENDA

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UK businesses have invoices worth £15.7 billion over 120 days

UK’s late payment mountain grown to £62.87 billion

Three quarters of SME’s affected by late payment

71% of SME’s in UK suffered over last 12 months

<Facts supplied by RBS Group April 2010>

RESEARCH

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FACTS

Domino affect

Cash flow affected

Sales and profit affected

Insolvencies / Winding up

RESEARCH

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THE IMPACT ON BUSINESSES

DEBT RECOVERY

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Exercise 1 Common Problems Do It Yourself Outsource It Small Claims Court Other Options

HOW TO FIGHT BACK

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DEBT RECOVERY

Break into 3 groups Discuss the following and prepare to feedback to

the main group:

- how old are your debts? - why are you struggling to get paid? - what excuses are you getting from customers?

You have 10 minutes

EXERCISE 1 - COMMON PITFALLS

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EXERCISE 1

No structured system in place for credit control No credit policies or clear guidelines set by the

organisation Skill gaps faced by new/small businesses Not sure of where to go for help Unsure of how to overcome excuses Afraid of upsetting your customer

COMMON PITFALLS

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COMMON PROBLEMS

Statements Reminder letters Late Payment Fees and Interest Should I sue? Winding up petition Credit Insurance

DO IT YOURSELF

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DO IT YOURSELF

The Late Payment of Commercial Debts (interest) Act 1998

Revised in 2002 and again this month Based on reference rate – reviewed twice a

year Current rate Late payment fees Visit www.payontime.co.uk

APPLYING LATE PAYMENT FEES

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LATE PAYMENT FEES AND INTEREST

Follow ‘normal’ credit control procedures

Make their money on charges, interest or commission

Negotiate/agree charges before collection commences

May negotiate with your debtors

May trace absconded debtors at a cost

DEBT COLLECTION AGENCIES

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DEBT COLLECTION AGENCIES

Personal visit to customer Stop supplying goods/withdrawal of services Enforce retention of title clause (if appropriate)

and reclaims goods Threat of bad publicity Ask external body to send letter on your behalf Write a letter from a different company (if you

are part of a group and with permission)

ALTERNATIVE TACTICS

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ALTERNATIVE METHODS

Can be effective method of debt recovery Procedures designed to be quick and easy to

operate Research court procedures and your

responsibilities Seek legal advice, where appropriate Consider if you have time and can afford the

expense www.moneyclaim.gov.uk (limit of £100k) If above £100k issue your claim personally at the

county court

SHOULD I SUE?

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Have I tried all other options? What is involved? How much will it cost? Am I likely to win? Has my customer got any money to settle debt? Has my customer got other court judgements

against them or pending? Have I got the time to pursue the debt?

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THOUGHTS TO CONSIDER

Credible threat may produce payment Threat costs nothing Statutory demand may be obtained from a

solicitor Will result in loss of further orders Can be used as part of enforcement of

judgement in small claims court Not attractive option if debt small Significant costs involved No priority given over other creditors

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WINDING UP / BANKRUPTCY

Protection against bad debts Consider size and spread of debts Good if reliant on one customer, small number of

customers or debts concentrated within one sector/area

Strict procedures applied by insurance companies

Can be very expensive If business financially sound with excellent credit

control processes in place insurance may not be an option

Available as part of invoice discounting / factoring arrangements

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CREDIT INSURANCE

EFFECTIVE CREDIT CONTROL

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Exercise 2 Organisation’s Role An Effective Credit Controller Credit Checks Terms and Conditions Beware Credit Thieves Warning Signs Procedures Excuses Telephone Calls Staying Motivated

HOW TO FIGHT BACK

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EFFECTIVE CREDIT CONTROL

Break into 3 groups Discuss the following and prepare to feedback to

the main group:

- what should your organisation’s role be? - why are credit controllers so important?

- what skills do they need?

You have 10 minutes

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EXERCISE 2

Understands the importance of cash flow

Ensures credit policies and procedures

Sets targets for reducing debt

Supports their credit controller

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ORGANISATION’S ROLE

Ensures continuous cash flow for the business Controls debtors Assesses and controls risk Resolves issues to prevent issues escalating Understands and applies the organisation’s credit

policies and procedures Is tenacious, self motivated and enthusiastic An excellent communicator Calm, cool and collected at all times

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AN EFFECTIVE CREDIT CONTROLLER

Checks credit ratings online Checks trade and/or bank references Sets a credit limit according to above and

manages each account to minimise risk Understands customers payment processes Communicates credit terms in advance Ensures terms and conditions are issued/signed Negotiate discounts to encourage early payment Develops close relationship with accounts

payable©

AN EFFECTIVE CREDIT CONTROLLER (2)

Credit Agencies i.e. www.creditsafeuk.com

Available free as part of Chamber membership

Restricted to limited companies

There are alternative agencies and sources

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CREDIT CHECKS (1)

Trade References

Confirm customer’s name and address How long have they dealt with them? What’s the credit terms/do they pay on

time? Limit granted and current outstanding? Association with customer?

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CREDIT CHECKS (2)

Bank References

Request written permission

Costs £20 to £25

Will take time / interpret the results

Are there any demands for payment made through court?

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CREDIT CHECKS (3)

Companies House

Quick check on basic data:o Company name and registered office

addresso Current status – active, dormant,

liquidation, etc

Access to historic accounts data and director details

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CREDIT CHECKS (4)

Sets out your trading terms and conditions of sale

Protects sellers rights and limits potential liabilities

Includes (amongst other items): Payment terms Late payment fees and interest Retention of title Insolvency/bankruptcy Jurisdiction/governing law

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TERMS AND CONDITIONS (1)

Must be signed by both parties

Enforces and gains agreement to your payment terms

Useful in the event of dispute

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TERMS AND CONDITIONS (2)

Trade references – potential given ‘best’ suppliers

Bank references - only as good as monies in account ‘today’

Larger the credit, the deeper the checks, as higher the risk

Keep up with events affecting customers – credit rating can change overnight

Limited companies requesting excessive credit limits

If customers want more, get cash for the extra©

BEWARE CREDIT THIEVES!

Delays in payment get longer More excuses made Telephone calls not returned/continuous voice

mail Returned mail Mistakes made on payments Penalty charges incurred are not paid Customers make payments on account Discounts are taken when not allowed/agreed Credit profile changes adversely

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WARNING SIGNS

Send invoices out promptly Copies of invoices to be systematically filed in an

organised manner Call customer to ensure receipt of goods/services

and receipt of invoice Any invoice issues or disputes, resolve

immediately Issue monthly statement of account Run weekly aged debt analysis reports for review Telephone week before debt is due to confirm

invoice being paid in accordance with credit terms granted©

PROCEDURES (1)

Send a ‘low’ impact letter on day one Ring customer on day four overdue for payment

date Send a ‘medium’ impact letter on day nine Contact customer on day fourteen for

confirmation of payment date Send a ‘high’ impact letter on day nineteen -

incorporating late payment fees and interest charges

Seven days after sending ‘high’ impact letter issue a solicitor’s seven-day letter

Keep log of all communications when chasing payments

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PROCEDURES (2)

The cheque is in the post

We don’t have an invoice

Our terms are 45 / 60 days

Nobody is in to sign the cheque

You keep getting voicemail

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COMMON EXCUSES / DELAY TACTICS

When was payment sent?

Resend invoice and follow up receipt

Refer them to signed terms and conditions of sale and your agreed payment terms

Find out when signatories available or if there are alternative payment methods (electronic payments)

Try different times of day, obtain alternative numbers or use other contact methods

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OVERCOMING EXCUSES

Be firm but polite and assertive

Control the phone call

Have a solution for all delay tactics

Practice beforehand when dealing with difficult calls

Escalate to superiors

Develop negotiation/compromise skills

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TELEPHONE CALLS

Set collection targets

Recognise achievements

Develop new skills, gain up-to-date knowledge, through training courses, seminars, etc

Speak to other credit controllers, share hints and tips on effective collection

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STAYING MOTIVATED

www.trustonline.org.uk – unsatisfied court judgements

www.hmcourts-service.gov.uk – leaflets on claims Leaflet EX350 – debt recovery for businesses Leaflet EX302 – how to make a claim

Register of Judgments, Orders and Fines 020 7380 0133

www.sthelenschamber.com/membership - log on to members area – Business Information Factsheets – Finance – general factsheets on debt collection available

Free legal advice available to Chamber members through 24/7 legal advice line

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FURTHER INFORMATION

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