Owed Money? Lucky you. OK, I am in the murky world of collecting money and I can exclusively reveal that many businesses both large and small are owed money.

Really? I hear you ask. OK, it’s not that incisive. Lets face it, unless a business operates on a strictly cash on delivery basis, its bound to have money tied up on the debtors ledger. Suffice to say, the vast majority of businesses give credit. My experience tells me that an even bigger majority of these could/should improve their collection performance.

This is especially relevant with new companies as they tend to be either too scared to offend precious clients or too protective towards their income to seek help from a 3rd party. This is not helped by an apparent lack of knowledge of what 3rd parties actually do. Here’s a comment that may make you sit up.

“COLLECTING MONEY IS EASY”

That statement is true with one postscript… as long as you have a structured system for aged debtors in place.

Quite simply, implementing a process for collecting your invoices that includes utilising a 3rd party at an agreed point will ensure you can concentrate on other core areas of your business. Internal systems should include (at the very least) the following:

• Credit Check for all new clients (price approximately £25) – For a small fee, you can check how long a company has been trading, who are the directors, do they have any CCJ’s against their name. All things that may make you think twice about offering credit.
• Credit Terms – Sounds obvious, but let your client know what your credit terms are. As a rule, do not extend beyond 30 days. If you’re concerned, limit to 15 days. If any client asks for more time, ask why. This might be the sign that all is not right. Do some homework.
• Notice period for disputes – Many companies will use a fabricated disputed as a reason for slow or non payment. It’s essential that you let them know that any problem be highlighted within a period of time. 7 days should be adequate.
• Ownership of product – Quite simply, the products remain yours until payment is received.
• Statutory Interest – If you get a problem in the future and want to charge interest. You can’t unless you have communicated it as part of the initial contract.
• Procedure for late/non-payment – Let the client know what you will do if there is a payment delay i.e., interest, 3rd party involvement, a stop on all orders etc These terms seem obvious and should quite rightly be a matter of course. However, at our agency in London, we get many cases every week were all or most of these haven’t been implemented. Further to that, the debtors in most cases know that they ultimately hold all the aces and will end up paying when they want to, not when you need them to.

Reasons like: “It was a big Blue Chip firm”, “They have done business with us for ages”, “It was a big order, so we didn’t want to jeopardise it” or “It was only a small order” should be immediately banned as any justification for not operating sound business practises.

I cover the area of 3rd party options in another article but there should be a point in the age of a debt when it is passed to professionals. As a rule of thumb, six months is too long.

Remember, every invoice that exceeds your credit terms has a negative impact on your company’s profitability. Very often these are hidden costs which organisations often wrongly consider to be part of running a business. This fact is undeniable – Bad Cashflow Can Kill Your Business.

To clarify, implement 3rd party involvement at a specific age of every invoice. As long as you have vetted the agency, negotiated good rates and just as importantly discussed your business (clients, products, service, ethos etc. Any 3rd party that does not ask about your business should be avoided) you should ensure optimum credit control.

All businesses will suffer from bad debt at some point. It’s a fact that some businesses go under and some are even out to steal from you from the beginning. However, these are very rare and as long as you implement the procedures outlined above, you will dramatically reduce your exposure to slow/bad debt.

This was a guest post by Gregg Jones of The Express Group who specialise in collecting outstanding commercial debt.

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