The Octempo:RM Blog

Good credit control - How to prevent bad debt and get invoices paid on time - Volume 4 - Late invoice payment

Tuesday, 14 January 2014 21:16 by The Late Payment Assassin

 

Wouldn’t it be great if all your customers paid you on time, automatically without any intervention? Unfortunately they don’t. In previous blogs I’ve touched on the earlier stages of credit control. Focus for this blog is late payment. You need to be tough with your customers – not aggressive but professional. And you need to do what you say you are going to do, otherwise your credibility is undermined and your debtor knows you are a soft touch.

 

As soon as an invoice goes overdue there should be a clear sequence of events that follows, and that your customer understands. Phone calls initially going through to more formal letters – with set days in between - and then to the point that you instruct a third party to begin the debt recovery process. Other suppliers will be getting paid whilst you dither. Make sure the debt recovery agency that you use has the right experience. Ask for references – we always provide them on request in Octempo and also post them on our web pages.

 

With late invoice payment you generally get what you are prepared to accept. If you get the earlier stages of your credit control process right then late payments should be in the minority. Don’t let late payment become the norm as then – as with most habits – it becomes difficult to break

Good credit control - How to prevent bad debt and get invoices paid on time - Volume 3 - Credit control collections process

Friday, 20 December 2013 20:45 by The Late Payment Assassin

Get on the phone and talk to your customers. OK so that wouldn't make a very interesting or extensive blog post but it's the simple truth. Good credit control is about using the phone and following up invoices before they fall due for payment. Let me explain.

 

Scenario 1 - a business invests in some great software. It automatically emails statements and sends reminder letters. Requires a lot of set up and maintenance from the business. They sit back and expect collections to improve and debtors to reduce. They don't. Letters and emails can easily be ignored and the recipient feels no shame in doing so. After all they probably get 100 emails a day

 

Scenario 2 - a business engages someone to do follow up calls and build a relationship with the Finance contact at the customer. Need to get the right person with the right personality to be comfortable chasing for cash but not too agressive. Calls don't get ignored, particularly if they know you will always ring until you get connected. Makes ure you get the right person to speak to though. We often come across credit controllers who are afraid of the phone....so be careful. Couple of months in with this new calling regime and debtors are reducing and cash flow looks healthier all round

 

You also need to make sure you get the right metrics to measure the performance of your credit control. At the very least you should be looking at a cash flow forecast based on expected payment dates. Each week you should review an analysis of older debt and ensure actions are in place to fix. Set targets for aged debt e.g. nothing over 60 days overdue. Look at the average days it takes your customer to pay and track the trend which should be going down.

 

Lastly the speed with which you resolve queries and fix invoicing problems is the biggest single contributor to successful credit control and prompt payment. Monitor your queries, fix the problems giving rise to them so you can avoid in the future, and ensure that all queries are resolved quickly. No queries = more cash in the bank 

Good credit control - How to prevent bad debt and get invoices paid on time - Volume 2 - Credit control policy

Friday, 29 November 2013 20:42 by The Late Payment Assassin

Sales people want to sell - after all is what they are paid to do and what they get commissioned against. Finance people are paid to bring control to a business. Not being paid for the sale you make is a pointless waste of effort and costs the business real cash. Finding the happy middle ground is the key to success and this is where your credit policy comes in.

 

What is it? A good credit control policy defines the process for taking on new customers, how their credit limit is set and what happens if they pay late.

 

What isn't it? A bat to beat sales people about the head with and hide behind taking any risk. If you grow sales you extend credit you take a risk - a good credit control policy helps you manage that risk

 

What should it contain? That depends on your business but here's some free credit control advice:

 

- introduction - what is the credit control policy meant to do

 

- risk management - outline how and when and why you credit risk assess customers. Who authorises credit limits? Distinguish between new and existing customers. Who makes the sales people aware of limits?

 

- credit control invoice chasing process. What happens with late invoice payments? When do customers go on stop and what communication takes place

 

- overdue balances - what is the sequence of phone calls and letters to the customer. When do you use a debt collection agency?

 

For those who follow our blog we are happy to send a free credit control policy template - just ask for a copy at info@octempo.com

 

 

 

 

Good credit control - How to prevent bad debt and get invoices paid on time - Volume 1 - Credit reports

Thursday, 21 November 2013 11:48 by The Late Payment Assassin

 

Prevention is the best cure when it comes to potential bad debts. Every time you decide to sell to a customer on credit - and let's face it you generally don't have much choice if you want to grow your business - then you introduce an element of risk.

 

Risk in a business is normal. It's why you can make a profit. But is does need to be managed. This is the first in a series of weekly blogs that looks at the tools available to manage the risks of extending credit to customers. First up are credit risk reports.

 

Credit risk reports are a way of understanding the creditworthiness of potential customers. You can buy different types of reports that contain different levels of detail and data - the more detail the higher the cost. They do carry a major health warning in that the informatiion is historic and the fortunes of a business can change quickly. It's better than nothing though and the important thing to look out for are the trends. A good credit control review would look at:

- sales - are they growing?

- if growing, are they overextending the business leading to a squeeze on cash?

- look at cash and liquidity ratios? Is there cash in the business? Are current liabilities greater than current assdets? What are the trends

- are there any County Court Judgements? Are there reports of slow payment?

- if the business is shrinking, why is this? Ask the question of the customer?

- are they shedding staff? Why

- how big a part of your turnover will this customer represent?

 

The above list provides a flavour and is not exhaustive. The credit report also provides two key financial numbers - working capital and net worth. As a benchmark for a new customer keep their credit limit to within 10% of their net worth. A Google search can also reveal some interesting information....and it's free so a useful addition to the credit risk report.

 

A further word of caution though. If you are not comfortable with what you are looking at get someone to help. Extending credit when you do not understand the risk is not a sensible approach and will increase the chances of late or non-payment. 

 

Next week we will look at credit policies.

Octempo launch Back Load Protect, essential financial protection for haulage businesses

Thursday, 29 August 2013 21:32 by Julian

Octempo:RM is to continue lightening the load of bad debt risk for haulage firms with the launch of our new Back Load Protect service.

 

Back Load Protect allows greater protection for firms trading with customers overseas under ‘backloading’ deals, where the truck goes out full and then loads up with more goods to bring back to the UK for the return journey.

 

These deals expose hauliers to credit risks, because they don’t have a relationship with their client and often source business through a third party, for example an agency. And they often overlook obtaining credit information on overseas companies as it can be expensive.

 

Our new service allows them to reduce their exposure, by outsourcing the credit checking of the foreign customer, the credit control follow up, and if needed the debt recovery to a firm with a number of foreign nationals who have direct experience of the haulage industry and understand international business cultures. And with Backload Protect you can pick and choose which element of the service you want.

 

Hauliers are coming under increased pressure through falling demand, increased competition, higher fuel prices and shrinking margins. Being hit by a bad debt in this environment can have serious implications. We launched Back Load Protect on the back of supporting our haulage clients. In particular we have an £18m turnover haulier client who generates 20% of their business through backloading on trips to Southern Europe.

 

Much of their work comes through an agency so they don’t know the actual customer, so it makes sense for them to have extra protection against potential bad debts. On margins of 5%, a bad debt of just £5,000 would put massive pressure on them as they would need to bring in another £100,000 of invoiced sales to overcome the loss.

 

Our haulage clients claim Back Load Protect is a flexible option because it can be used on a pay-as-you-go basis only when the firm is looking for backload business. It is also highly cost effective as you can avoid annual subscriptions on credit information and you gain access to our overseas skills and experience at a fraction of the cost of providing similar in house.

 

Further information is available at http://www.octempo.com/BackLoadProtect.aspx

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