Blood from a stone
Article Date: Nov 08 2006Julian Roberts, director of PwC’s receivables management group, urges businesses with recurring credit problems to ‘get back to basics’. He explains: ‘At the most basic level, you need to have people who are actively involved in chasing debt, rather than just doing it on Saturday morning as a number of business owners do. It all comes down, at a very early stage, to knowing your customers.
‘It can be useful before you do business to do some "sounding out" about a potential customer’s credit-worthiness – even if it’s just "He’s a good chap" from someone whose opinion you trust. And your sales team is a very important part of that – they go into the offices of your clients and can see if the company is well organised.’
Aside from that, there are numerous agencies that provide reports on how quickly potential customers pay their bills, and, if they’re listed, you can find out for free on Creditscorer.com.
It’s vital to have a good credit controller, stresses Roberts. ‘They should have monthly cash collection and overdue-debt targets; better still, they should be incentivised to meet them.’
Management incentives
Or go further, counters Wilmshurst, outlining the most important change he made at Nationwide – incentivise management to take responsibility: ‘We linked debt to managers’ rewards. If there was a £1,000 debt that passed 90 days that would cost the manager £100. Suddenly all the managers found a way to get their money. Management of credit needs to be part of managers’ jobs, not just something they blame on the finance department.’
When signing deals, it is imperative that sales staff ensure contracts contain your terms and conditions, or at least decide whose terms and conditions apply and whose jurisdiction it is if you’re dealing across international borders. Jane Dunlop, partner and debt recovery specialist at law firm Clarke Wilmott, has seen businesses make purchasing deals verbally or on the back of the proverbial fag packet. She stresses that ‘if a contract’s straightforward and there are terms and conditions that have been adhered to, the money has to be paid.’
So, when is it appropriate to call in outside muscle? Mark Boughton, CFO of technology services provider Venue Solutions, says he’s only had to do it once at a previous post. ‘It was a decision taken after six or seven months of haggling with the company, getting promises made just to keep us quiet. I felt it was appropriate in this case and the debt collection agency used strong-arm tactics and just camped in their lobby, refusing to leave until they got a cheque. I prefer to meet with the FD and work something out with them – everyone can have credit problems at some point.’
