The Octempo:RM Blog

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 

If you run a business and extend credit you always have the risk that a customer doesn’t pay you. You manage this risk through good credit control but sometimes even then you can still be hit by a bad debt. We had a client recently who came to us because a customer had gone into administration. Whilst we were happy to offer free advice on how to proceed, one call to the administrator confirmed it was a lost cause. 

This was not a big debt - £1800 - and it happens. The interesting point though is how the debt grew. The client had a reasonable credit control policy but decided in this case not to follow it. A couple of months went by and the debt grew and what was £600 per month on an invoice became £1800. The client had not been disciplined or aggressive enough. Service should have been withdrawn earlier and at least then the exposure would have been limited. 

We always recommend that a business reviews its aged debtors weekly and then takes action to remedy. The current economic environment makes this even more necessary. This is good credit control and ensures constant monitoring. Neglect and a lack of discipline are every slow payers dream. Don’t let bad debt happen to your business.

I met a guy last night who had lost his business due to a customer refusing to pay. Total debt amounted to £300k and all through the job he had been promised payment and re-assured. There was a strong and warm personal relationship but as soon as the job was finished the customer changed stance and refused to pay. This bad debt took an otherwise sound business under.

What can we learn from this? Hindsight is a wonderful thing and whilst this may look like a failure of trust it is actually a failure of objective and professional credit control. So what could have been done differently:

- the work was over a period of time so staged payments would have helped

- divorce trust from objective reality. No payment after repeated requests = guys pulled off job. This is leverage

- clear credit control escalation policy for late invoice payment

And the worst part? The debtor has plenty of cash and can pay - just doesn't want to. It's going through the courts now and will no doubt be tied up in red tape for a couple of years.

Remember - asking to be paid on time is not a favour, it's professional business practice. If you are uncomfortable completing the credit control in your business get someone in to help you. It's too important to neglect.

As markets across the world fall it is worth understanding that these macro economic problems will impact directly on businesses that engage in export from the UK. It is sometimes easy to see stock market falls and IMF bail outs as 'big stage' problems that do not impact individual businesses, but the reality is very different.

With a GDP of only 2% of the Euro zone the major risk to UK exporters is not Greece itself, but rather a more widespread public debt problem that exists within all major developed economies - a problem that all will have to deal with at more or less the same time.

The austerity measures that have been enforced on Greece by the IMF are brutal - examples include a VAT rise of 2% to 21%; public sector salary bonus cuts of 30%; tax rises on fuel, tobacco and alcohol; and a state-funded pension freeze - but Greece has no choice but to reform its economy. Whilst the IMF/EU bail out also includes measures to stimulate the economy the short term impact will be a choking off of domestic consumer demand.

The falling demand is important for exporters as it will quickly lead to tighter cash flow problems for businesses in Greece, extended invoice payment and an increased probability of default and bad debt. We are advising all our clients, with our support, to keep very close to their customers in Greece, to re-evalualate the credit status of those customers and also review existing terms of trade for new business.

And whilst the problem currently impacts Greece directly, there are fears that other economies such as Italy, Spain and Portugal could go the same way. These risks cannot be controlled by an individual business but they can be identified, managed and mitigated. For more information please visit www.Octempo.com and request a free no obligation call back.

Newly released Business Link data shows that nearly half of UK small and medium sized businesses have no efficient system in place to chase unpaid invoices. Implicit in this statement is that systems do exist. Efficiency is one thing but effectiveness is more fundamental, yet the two are closely related. Many businesses use very traditional credit control processes with a lot of manual correspondence and little use of the phone. A lot of credit controllers are actually afraid of using the phone, largely because they only chase invoices after they are overdue so every phone conversation is negative and defensive. 

Equally, in smaller businesses it is a real challenge to employ, in one or two credit controllers, the mix of skills required to effectively support trading, manage credit risk and minimise DSO. Modern businesses realise that credit control is an increasingly specialised area and needs to be resourced and managed as such. 

With increasing levels of business fraud, heightened credit risk and delayed payment by customers, effective cash management and credit control has never been more important. Today's credit control team needs to have a broad range of skills and software tools to support the business. Look at your team. Does it meet the demands of your business today and tomorrow? If not then you need to take action, but before your recruit take a look at outsourcing. You will get a higher skill level at a lower cost. For smaller businesses you can get a full time credit control provision for the cost of a part-time clerk.