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How to improve your Debtor Management |
 
| Credit control is a vital element of any business, unless of course your firm predominately handles cash. Very few companies are lucky enough to have clients who pay their bill as soon as it is invoiced. More often than not successful cash flow management can be the difference between success and failure. Thankfully there are steps you can take to ensure your businesses finances remain on track. If you do have to offer credit to your customers, allowing them to pay after they have received your product or service, it pays to vet them first. The checks you make on any particular customer must depend on the amount of credit being offered relative to your overall turnover. If it’s a relatively small order the investigation may cost more than the profit you make. So you’ll need to decide whether you are willing to accept such risks. Often the franchisor will be able to offer some guidance with this and they themselves would have carried out thorough checks for any national account work that they may offer you so that they fully understand that company’s payment policy. If a customer sale is significant and they request credit then you will need to carry out your own checks. These may include bank references, trade references, sight of their latest financial accounts, a credit reference agency search or even a site visit. You may wish to start a new customer on a relatively low credit limit to monitor their payment history before considering increasing it. But remember you will need to carefully assess the risk each time you review a customer’s credit limit. Some payment options you may wish to consider are cash with order, cash on delivery, payment after a specified number of days, or monthly credit with payment by a certain day in the following month. Legally, small businesses can charge interest on late payment of invoices, although this is a seldom used practice because they don’t want to lose future business with a customer. One way to encourage early payment is to offer a cash discount, although you will need to have good systems to closely monitor this and to make it clear that customers are only entitled to the discount if they meet the conditions you have offered. Prompt invoicing is essential. I have heard horror stories from business customers who only invoice once a month and wonder why they have serious cashflow difficulties. You should, wherever possible, invoice on the day the service is provided or the goods are delivered. This is a sound financial practice which must take precedence over other administrative duties you may have that day. Failure to do this creates the impression with your customers that you don’t keep tight credit control and you won’t mind waiting for your money. Credit terms should be prominently displayed on the invoice. As soon as the deadline for the invoice passes you should send a polite fax followed up with a letter chasing payment. If you don’t receive payment or a response within one week, fax again and follow up with a letter sent by recorded delivery. A phone call should follow enquiring whether there are any queries with the account or with the goods or service provided. Find out why you haven’t been paid and try to get your customer to commit to paying as soon as possible. If all else fails you may want to consider whether you wish to continue doing business and you could take steps to freeze any existing credit line until the outstanding matter is resolved. Of course you could go and collect the money in person and bank the cheque immediately. If you do that you’ll need to make sure that it has been dated correctly, signed by the customer and the words and figures on the cheque are both correct. If this fails, then ask your solicitor to send a formal letter threatening legal action to recover the outstanding debt. If you’re dealing with an individual you may decide to start bankruptcy proceedings or if it’s a company you may begin action to wind up the firm. Take your solicitors advice, which may include using the small claims court or even walking away from the debt if it is too expensive to pursue, or too unlikely to succeed. It may seem an obvious point to make but if the relationship gets to this stage the time has come to stop doing business with the customer. You should also take stock of your credit assessment procedures to see if there are any lessons you could learn to avoid similar problems in the future. If you require debtor management support and guidance, Lloyds TSB has business bankers in all its local business centres and most branches as well as 13 Franchise Development Managers across the country. Lloyds TSB business managers help around 100,000 businesses get started every year. |
For further information on this subject, you can contact Richard Holden using the contact form below.
UK - Richard Holden Franchise Information, Lloyds TSB, Improve, Debtor , management
