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COLLECT!

3rd July 2003, Page 41
3rd July 2003
Page 41
Page 41, 3rd July 2003 — COLLECT!
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Which of the following most accurately describes the problem?

Getting paid on time should be top priority for every business. Easier said than done but, as Wilf Altman explains, a good system will go a long way to speeding up cashflow.

Hauliers work on notoriously tight margins with 5% profit over a full year often the norm. Yet many still lack a clear credit policy. When payment is late, do you send out a reminder letter or get on the phone? Are your trading terms and conditions absolutely clear? Are they designed to protect your rights to limit potential liabilities and provide some degree of security for recovery of the debt, following the supply of goods or services?

A good credit policy should stipulate credit limits, credit notes, write-offs and a timeframe for resolving queries, chasing debts and taking legal action.

When a new customer requests credit, make sure he or she signs an application for credit and agrees the terms. The application form should show the customer's registered number (in the case of a limited company) or the names and private addresses of the proprietor or partner. You must also take out trade and bank references. For each established and new customer there should be set credit limits and a time for resolving queries, chasing payment and in extreme cases, taking legal action.

Fewer than half of Britain's small firms have written credit terms, according to the Better Payment Practice Group (BPPG). The BPPG was set up five years ago with the backing of the Forum of Private Business, the Institute of Directors and the British Bankers Association to arrest the damaging level of late payment. The Group offers useful advice on credit management in the case of new customers.

Trade references are too important to be left vague. Make it easier for the respondent—and more satisfactory from your point of view—by suppMng a printed questionnaire, tick boxes and a pre-paid envelope. Such a form should show name and address of the business, how long known, what terms—ie 30 or 60 days—sales per month, whether payments are made promptly, name of credit contact, and other useful information.

A credit check company like First Report provides access to the UK's largest credit checking databases, Clients can purchase single reports as and when needed costing between £15 and £30, or open an account to obtain regular reports. Information can range from basic credit reports to a set of accounts, annual returns and company directors' reports.

Credit services

Some specialist credit companies now offer a variety of services to maximise firms' own credit processes. For example, UK Data charges a small fee for a quick company assessment, or you can opt for a more detailed report which includes risk analysis, directors, accounts and industry comparisons.

ICC Credit uses advanced investigation tools to help reduce bad debt. Its service is based on a thorough investigation into the haulier's credit processes. Following this consultation, it offers detailed recommendations to maximise cash flow, reduce exposure to late payment and bad debts and identify opportu

nities that may have remained hidden. The service is based on the findings of a one-day client site visit, credit department audit and assessment of the credit management approach and effectiveness. This allows ICC to identify shortterm practical improvements and provide a management report detailing key findings, together with short, medium and longer-term recommendations.

When every other avenue has been exhausted, third-party assistance, such as collection agents or solicitors, may be necessary. If orders involve large sums and cashflow is a constant problem, it may be worth taking a closer look at what factoring companies can offer.

Factoring companies will take on the outstanding debt, and pay you most of the invoiced sum, keeping a small percentage as commission. This method at least assists good cashflow and budgeting.

The threat of legal action is often effective by itself. Solicitors will charge £10 or more to send a legal letter in support of your claim. If this doesn't prompt the offending customer to pay up, it should then be followed up with legal action through the Small Claims Court.

Debt collectors

Debt collection agencies are another option; they will charge around 8-15% of any monies recovered, but great care needs to be taken in selecting such a firm—and ony do so on the strongest reliable recommendation. An updated list of debt collection agents is available from the BPPG.

Businesses are legally entitled to charge interest on overdue payment. Statutory interest refers to the right of businesses to charge interest on overdue commercial invoices under the Late Payment of Commercial Debts (Interest) Act 1998, as amended and supplemented by the Late Payment Regulations 2002, But statutory interest does not apply in cases where a business has made its own arrangements for claiming interest in its contracts, which is known as contractual interest. You can apply statutory or contractual interest, but not both.

The Lord Chancellor's Department has produced a guide for small businesses wishing to recover debts through the County Courts. Copies are available from local County Courts or on the Court Service website. There is also a leaflet on resolving disputes without going to court.

For credit management advice if you sell, or plan to sell, overseas there are numerous sources of help, such as the London Chamber of Commerce and Industry, the Institute of Export and SITPRO. The DTI also publishes a list of key export contacts.


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