The debt collection industry, probably more than any other, has suffered with a bad reputation.

Whilst there are undoubtedly some bad eggs out there, there are many more very professional, conscientious outfits.

The question you need to ask before you start choosing an agency is why exactly are you choosing one? What debt do you want collected?

Many companies start thinking about using an agency when a debt is written off. This is undoubtedly too late.

Written off debt is only attractive to the type of debt collection agency who will ask for money up front.

My own personal view is that paying for debt collection services in advance is a very bad idea.

At our agency in London, we often get calls from companies wanting us to chase other agencies that have been paid up front fees. 

A debt collection agency is best used at a specific age on your ledger. The age this happens should be based on a number of factors. Your credit terms, your in-house resource, your client base etc.

If you have in-house credit control make sure they concentrate on the more collectable debt. This will usually be between 30 – 65 days. If a debt on 30-day credit terms has not paid after 60 days and a problem hasn’t been highlighted, experience will tell you that this will take some extra pushing to pay. In-house credit departments can spend half their time working on these types of problem debtors, resulting in less time with the more collectable debt. Result: Debtor days go up, cash-flow goes down.

Using a professional agency at this point will avoid these pitfalls.

The key areas to check on an agency would be:

►           Current Clients. Ask for names and contact details. Then check them out.

                For me, this should be the number one thing to do on your check list.

►           Make sure the fees are based on a No Collect / No Charge basis (between 5% -           15% and the debtor       still pays you. You are then invoiced separately on              monthly basis.

►           Try and ensure you have collectors who are allocated to your account. This will        ensure they start to understand your business and your clients.

►           Set up review dates at quarterly periods.

►           As strange as it may sound, don’t let membership of any association sway you         one way or the other. Membership tends to be based on paying fees alone.

►           Choose an agency who is willing to collect debts in your name

Choosing the right agency can be the difference between survival and failure and can give a huge boost to your company’s cash-flow.

gregg@collect-debts.co.uk

www.collect-debts.co.uk

Really? I hear you ask. Glad you came?………………….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.

I have no idea of the ratio, so let’s make it up. Let’s say that 82% of companies send out invoices and give credit.

If we say it enough times, it’s bound to become the accepted figure quoted by various banks and other financial institutions across the world. Like the fact that 26 is the national average scored with three darts, which must be true.

Anyway, enough of that. 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 3^rd party. This is not helped by an apparent lack of knowledge of what 3^rd 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 3^rd 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 appx £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 ore 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, 3^rd 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 3^rd 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.

Bad Cash-flow can kill

Very often these are hidden costs which organisations often wrongly consider to be part of running a business.

This fact is undeniable –

To clarify, implement 3^rd 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 3^rd 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.

Gregg Jones

gregg@collect-debts.co.uk

www.collect-debts.co.uk

This will usually result in you paying an upfront fee that

will never be seen again

►        Assuming “Everything will be alright”

            Be on top of your collections

►        Assuming aggression will get your money paid

            More likely to lead to confrontation and a long wait to be paid

►        Immediately reverting to court action

            Remember this fact: A CCJ is no guarantee of payment

►        Ignoring your debtor’s problem

Your client may just have a small issue. Don’t be scared to find out what the problem is.

►        Horses for courses

            Often the worst person to make a chasing call is the Boss.

►        Fail to Prepare, Prepare to fail

Communicate your credit terms at the point of sale. If you don’t, you are leaving it to chance. Not a good idea.

►        Don’t let a current debt become a write off.

The only difference between a new debt and a write off, is…time (6-10 months on average)

►        Organ grinders & monkeys

Don’t fool yourself with the easy option. Chase your money with the person that holds the purse strings

►        The last is actually a bit of advice…Get the experts in to do the job!

I’ll leave you with a quote