The Cheques in the Mail – yeah right!

If cash is king why are credit control and debt management rated among the last things many business owners and managers want to tackle? Is it about being the nice guy – reluctant to ask for payment? Or are smaller companies often so delighted to have a ‘big’ client that they let them call the shots – which can mean paying as and when they see fit? Yes, and yes, say the experts. And misconceptions abound; do any of the following sound familiar? ‘Customers will pay as soon as they’re able to’; ‘if I make enough profit it will cover the slow collection of debts’; ‘times are tough, there’s nothing I can do – everyone is in the same position’. Maybe they’re just excuses for not tackling a thorny problem. The size of a company appears to make little difference to its success in managing debtors. The key is the existence and enforcement of proper terms and conditions governing trade, says Stephen Nicholas of Wellington accountants Openside CA Ltd. “Some very small businesses have great debt recovery, as do some fast growing companies. But with growth comes the usual result of requiring more staff to cover the expanding work; this in turn means that key responsibilities and tasks have to be delegated.” It’s critical, says Nicholas, that credit control and debt recovery is delegated to someone who clearly understands the significance and responsibility involved and has the required skills. “Terms and conditions agreed to by the customer, at the beginning of trading, must be clearly communicated then enforced consistently if payment is not forthcoming at the due date,” he says. But what about the risk of offending customers by asking them to pay? “The reality is more likely to be that they are embarrassed they’ve not paid!” say Edward Cox, commercial litigation partner with Wellington law firm Gibson Sheat and the firm’s credit controller, Hilary Chasteauneuf. “If you have clearly established the time for payment in your terms and conditions, there should be no reason for payment not being made on time, unless there is a dispute, which as the business owner you should know about in order to resolve it.” The most common reason creditors are not paid on time is what Cox and Chasteauneuf refer to as ‘administrative inertia’ at the debtors end. A polite enquiry will invariably bring results says Cox. “That said, it’s not uncommon for customers to deliberately delay payment in order to improve their own cashflow.” The outsourcing solution With the challenges facing business today increasing the pressure on staff and resources, outsourcing all or part of the accounts receivables process can be the ideal solution, says Jannine Wilkinson, northern regional manager for Baycorp NZ Ltd. This strengthens the current staff resource by using the skills of specialists, maximises customer contact opportunities using the technology deployed by larger companies and protects the brand and existing customer relationships. Wilkinson also emphasises the importance of establishing terms of trade. Her advice is to cover all your bases. “If your customer was not informed of potential costs when incurring the debt you could be breaching the Fair Trading Act if you or your agent subsequently demands these fees.” Technology (Baycorp’s Wilkinson refers to it as ‘the great enabler’) can enhance the collection process, but the costs involved put it out of the reach of most SMEs. “By partnering with a suitable agency, you can make the most of technology such as predictive dialling that will ensure the maximum amount of calls are made to your debtors, thereby maximising your collection results.” “Problems will often occur when a business is new,” says Laurie Brenssell regional business development manager for Receivables Management (NZ) Ltd. “Most people are passionate about their business and equally enthusiastic about selling and making a success of the business. However, they are often less than adept at recovering their unpaid accounts which will lead to lost revenue, lost clients and worst of all, a liquidity problem for their business.” There are a number of options open to businesses endeavouring to keep their debtors ledger under control. Debt factoring and invoice discounting are two of these. The use of a service to manage the ledger, from the point a debt becomes overdue, may be the answer, says Brenssell. “Another service is the pre-collection function where debtors can be forwarded to a collections agency who will treat the debt in a passive manner prior to going in to full debt collection.” This, he says, has the effect of reducing costs, getting money sooner and more importantly, increasing customer retention. “This is often lost when the debt goes to debt collection.” Online service IOUNZ is a comparatively new player on the credit control and debt collection front. The focus is on businesses using the web as their main B2B communication link, says sales director Charles Beech. “IOUNZ offers the user a secure online account where credit control and debts can be lodged and monitored from anywhere, anytime. We tailor the user’s online account so bulk uploads can be performed directly from their accounting system.” This, he says, eliminates tedious paperwork and data entry. Beech says their product has been the solution for many businesses which have been seeking an in-house credit controller. “They’ve discovered IOUNZ as a means to outsource, thus eliminating costs for training, wages and resources.” Clients are able to monitor all communication and the status of debts through their web interface, says Beech. “This is updated at the time of communication with the debtor.” ‘It’s all good’, reports one satisfied client, ‘our outstanding accounts are down, our cash flow is up and the stress is gone’. “There’s no universal answer [to debt management],” says Gibson Sheat’s Edward Cox. “Beyond recognising that getting paid is a core business activity and needs to be done as well as developing and selling products and services. Put the effort into credit control and the time spent on debt management will, hopefully, be reduced.” And don’t let fear of confrontation get in the way of your accounts receivables. “Remember, ‘the meek will inherit the earth – if that’s alright with everyone else’! “Requesting payment in the manner agreed is not confrontational,” suggests Cox. “It’s the polite business end of doing business.” Patricia Moore is an Auckland-based freelance writer. Email [email protected] Relevant websites: www.collectit.co.nz www.openside.co.nz (weblog; www.blog.openside.co.nz) www.iounz.co.nz www.qbe.co.nz www.rmg.co.nz www.baycorp.com.au www.gibsonsheat.com