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22 July

If you're doing your own credit control, then here are the basics that you need to be aware of....

Cash flow is the main reason that businesses fail and that is even more true at the moment. Make sure that you don't become a statistic by keeping a close handle on your debtors - it's not the only area to concentrate on but it's certainly one that you can't afford to ignore.

Read our checklist and make sure that you are covering all of your bases.

• Remember the 80/20 rule - 80% of your business comes from 20% of your customers - keep this at the front of your mind at every step along the credit control highway.
• Credit check new and existing clients - especially those that fall into the 80% category as many businesses fail purely because one major client has gone bust. Credit checking is cheap and can help you to ascertain which of your clients should be considered a high risk.
• Ask for payment up front from new clients - if the client will not agree to this then ask for 50% upfront. If they will not agree to that then be cautious of taking their business - only supply people that genuinely value your service/product enough to pay for it!
• You may have standard terms but that does not mean that they should be applied to every client - use tougher terms on the higher risk customers and those falling into the 20% category.
• Ensure that Terms and Conditions are provided to all customers at the outset of your relationship and make sure that the signed copy gets sent back to you. It is not always necessary to do this from the debt recovery perspective if you can show that both you and the customer had intended the relationship to be contractual and that you have delivered on your side of it. However it is an added complication that is simply unnecessary.
• Keep your invoicing as simple as possible to avoid as many queries as you can since queries can add a significant amount of time on to the payment cycle.
• Raise invoices as soon as possible and send as many out electronically as you can - this not only saves money but ensures delivery of the invoice to the correct person.
• Make your first chasing call a couple of days prior to the invoice becoming overdue for payment to make sure that everything is in place for swift payment as the invoice hits the overdue date. Bear in mind that all invoices are due for payment as soon as they are issued - once you hit the 30 day mark (depending on what terms you offer) the invoice is overdue.
• Letters have their place in the chasing cycle, particularly if you have a high volume of debtors, but chasing by telephone and email provides for a faster result so your credit controllers should feel confident in all three methods and should apply the correct method for each individual debtor.
• Respond to all queries and requests for copy invoices as promptly as possible since they can cause a huge drain on your cash flow. If necessary implement a query management system.
• Review your management reporting to ensure that you are getting a clear and accurate picture of your debtors ledger - looking at an aged debt report is not sufficient as it will not show you how much is in query and so on. You should also be looking at your DSO, recovery rate (ie how much of what you invoice has to be written off or credited), the amount in query and what is causing those queries and any other aspects that may be pertinent to your particular industry or ledger.
• Use The Late Payment of Commercial Debts (Interest) Act 1998 as a deterrent to non-payers - the act allows for compensation as well as interest to be charged should your debtor fail to pay you and the threat of these charges can be very effective in encouraging early payment. Note that you do not have to have any interest charge detailed in your contract to be able to apply this but you can only use it when the debtor is a company. You should use Section 69 of the County Courts Act 1984 on consumer debts.

Best wishes, Eleanor

www.batemanscredit.co.uk

02:31 GMT | Read comments(0)

20 July

Have you been asked for a deposit....exercise caution before handing over your hard earned cash!

With the difficult economic climate, some suppliers are now asking their clients for deposits before they do any work. Very prudent from the perspective of the supplier but you need to consider the risk to you before you give them your money. Many company's will use your deposit as short term cash flow which is absolutely fine assuming that they still deliver on the job.

It's standard practice to credit check a new client so why not check a new supplier if they are asking for your money? I had a client recently who was planning on spending about £30k on new office equipment. The suppliers asked for a 25% deposit and, in my opinion, £7.5k is a lot of money to 'give away' without checking the credit worthiness first. Fortunately my client did do a credit check and found that (under the trading name they had been given) the company was in liquidation! They had set up with a slightly different name which had an incredibly poor credit rating (29 out of 100 and a suggested credit limit of £0!!).

In the circumstances, I think that most people would think twice before parting with so much money but my client wouldn't have had any of that information without the credit check being done first. So think carefully before you spend a lot of money with anyone and, of course, keep checking your own clients.

Best wishes,

Eleanor Bateman

Bateman's Credit Services Ltd
Tel: 07766 410122
Fax: 02380 000118
Email: eleanor@batemanscredit.co.uk
Web: www.batemanscredit.co.uk

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03:56 GMT | Read comments(0)

Excuses for non-payment and how to overcome them

Whatever sector you are in, you will always come across some debtors that will try every trick in the book to avoid paying you, especially now that times are leaner. The best defence to that is being prepared so some of the most common excuses are below along with a suitable response.

When you are on the call, bear in mind that you supplied the products/services in good faith so you have the legal and moral right on your side. You have agreed terms with them and you have stuck to your side of the deal. However, good credit control aims to maintain the relationship so that you can continue working with them. When you call them you need to make sure that you have a friendly tone of voice and really listen to what their response is. Asking questions and building a rapport can frequently get you to the top of the list of people that need to be paid immediately. Your attitude should always be that you sympathise with their situation but what are they going to do to fix it.

i) Excuse - The cheque is in the post or I've already paid you
Reply - Thank you very much. Please can I have the date that the cheque was sent, the amount it was for and the address it was sent to?
Reasoning - It is entirely possible that it is in the post. If they say that it was sent more than 4/5 days ago then it has presumably gone astray and you should ask them to put a stop on it and reissue the cheque. However, it was sent recently then it is worth waiting for a few more days to see if it will turn up. If they say that the cheque has already been cashed but you have no record of receiving it, you will need to ask the client to get their bank to find out which bank account the cheque cleared into. It is entirely possible that the payment has come in and been allocated against the wrong invoice.

ii) Excuse - I need a copy of the invoice
Reply - I'll fax or email it over to you now. You'll receive the copy in a few minutes. Can you confirm that the payment will be sent today?
Reasoning - It may be that they have lost the invoice but this is frequently used as a standard response to someone chasing for payment. Now that we have email and fax at our disposal, this response is largely ineffective since it is not necessary to wait for the post to deliver it. If there are other invoices outstanding, remember to ensure that they are being paid straightaway since there is no issue with them.

iii) Excuse - There's no one here to sign the cheque
Reply - How long are they away? How are you making urgent payments in the mean time?
Reasoning - There is no excuse for leaving your company in a position where it can't make any payments and it is very unlikely that has actually happened. If the necessary person really is absent then they will have made some sort of contingency such as leaving a couple of signed cheques with the accountant or authorising someone else to sign on their behalf in special circumstances. You need to regard your debt as being special.

iv) Excuse - We aren't satisfied with the goods/services
Reply - Have you already told us that there is an issue? Our terms and conditions state that queries need to be raised within X amount of days. How much of the total debt is affected? Please arrange for the undisputed amount to be paid immediately and I will arrange for the queried element to be investigated.
Reasoning - Any queries should have been raised before it got to the point that the invoice was overdue for payment. If you agree to go back to them in relation to the disputed items then make sure that you do so as soon as possible. Always make sure that the undisputed amount is paid rather than letting them delay payment on everything.

v) Excuse - Who ordered these products/services or I need a purchase order number
Reply - Ok, I'll fax or email over the signed agreement to you now. You'll receive the copy in a few minutes. Can you confirm that the payment will be sent today?
Reasoning - This may be a genuine excuse or it may be that the person you are speaking to is not aware of the terms on which you supplied the product/service. It may be that you have to revert to the person who placed the order to put the pressure on, particularly if they require a purchase order number.

vi) Excuse - We do not have any money at the moment/we're waiting for a debtor to pay us
Reply - I am sorry to hear that. What are you doing to rectify this situation?
Reasoning - This is the customers' problem and it depends on your relationship with them as to how you want to deal with it. If they are a limited company then they should not be continuing to trade if they are unable to meet their debts as they become due. If you want to maintain the relationship or if they are sole-traders or a partnership, then you may have to agree to receive the payment in instalments. Ensure that the end-date on the instalments is short and ask for post-dated cheques so that you do not have to chase them each time a payment falls due.

vii) Excuse - There is a postal strike/we're doing our month end accounts
Reply - Please arrange for a bank transfer, here are the bank account details. If it's not possible to arrange a transfer then we will arrange for a courier to come and collect the cheque
Reasoning - With today's technology there is no justification for this excuse anymore. There are always methods of getting the money to you if they actually want to.

These are the most common excuses for non-payment but some debtors will come out with all sorts to avoid paying. One of the funniest excuses I ever heard was at a company where there was only one person able to sign the cheques. The signatory had his dog in the office and the dog had knocked his false teeth out of the window so he had gone to the dentists!! I probably should have enquired further because there is so much nonsense in that excuse but I couldn't because it I was so stunned and trying not to howl with laughter!

Have you ever heard any funny reasons for non-payment?

All the best,

Eleanor

Bateman's Credit Services Ltd
Tel: 07766 410122
Fax: 02380 000118
Email: eleanor@batemanscredit.co.uk
Web: www.batemanscredit.co.uk

Sign up for our interesting and informative newsletter now!!

03:55 GMT | Read comments(0)

How much interest can I charge my customers and when should I charge it?

The interest you can charge your customers depends on whether they are a business or a consumer.

For businesses, the best act to use is The Late Payment of Commercial Debts (Interest) Act 1998

Key Features

Charge interest at 8% above the Bank of England base rate
Compensation based on the size of the debt - debts up to £999 = £40, debts from £1k - £9999 = £70, debts over £10,000 = £100
Great and easy calculator
Business to business debts only
Does not need to be included in the contract with the client

For consumers, the best act to use is Section 69 of the County Courts Act 1984

Key Features
Charge interest at a flat rate of 8%
Great and easy calculator
Does not need to be included in the contract with the client

Of course, you may prefer to stipulate your own interest terms but a judge is able to overrule any terms which they feel are unfair so going with one of the above rates is the safest bet. Generally when people chose to have their own interest terms, they opt for a certain percentage above the Bank of England base rate. With the rates changing regularly over the last year, that can make the calculations quite time consuming and I have not managed to find a good calculator online for that.

The Late Payment of Commercial Debts Act was introduced to help small businesses that were suffering from slow payments but it has taken some time for people to start using it. I am not suggesting that you regularly charge good customers interest but it can act as a very good deterant for those people that like to take as long as possible to pay you. It only takes a few moments to calculate the interest due and it will focus the mind of the person that owes you if you tell them that the interest/compensation charge will be waived if they pay within 7 days.

For example, if you are owed £750 from 3 months ago and you offer 14 day terms, you would be entitled to £15.82 interest and £40 compensation under The Late Payment of Commercial Debts Act and most people would rather pay up the £750 immediately instead of the having the debt grow to over £800!

I hope that this has helped and that you start using the interest threat when necessary - it's there to help you and with the difficult economic climate you need as many weapons in your arsenal as possible!

Best wishes, Eleanor

Bateman's Credit Services Ltd
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PS Don't forget that you calculate the interest on the total amount due including VAT rather than the net amount

03:37 GMT | Read comments(0)

Bateman's Credit Services Ltd

The solution to your credit control problems!