REFER YOUR DEBT TO Vetted Tradesmen NOW!
There's no reason to wait before referring your debt. A bad debtor is someone who won't pay you - it is not a prized customer. People who don't pay do your business no good, no matter how important their account may be.
The longer your unpaid debt is on your ledger, the more money your company is losing - lost cashflow is a negative item in your books, and costs you money.
If there is a genuine reason for non-payment or slow payment, we can find this out for you and get the matter resolved.
Yet amazingly, large number of our clients' debts are to people or companies whose identity is not known.
You need to check:-
Wherever possible obtain a Personal Guarantee from the Company Directors
If a Director has faith in his or her company, they should be more than willing to provide you with a personal guarantee for future orders. If any small business, or one-man band is a limited company and won't give a guarantee - don't touch them! Obviously with larger companies, you are unlikely to receive a personal guarantee, but once you have done your Check, you will know whether they pose a risk. With smaller companies, however, these notoriously go into liquidation and get struck off very regularly - wiping out your chances of getting paid unless you have a guarantee.
PLEASE ENSURE THE GUARANTEE IS IN WRITING, SIGNED BY THE DIRECTOR CONCERNED ON BLANK PAPER (IE NOT LIMITED COMPANY LETTERHEAD) AND IS INDEPENDENTLY WITNESSED)
Give your customer a Credit Limit
You don't get to walk into Sainsbury's, take what you want, and promise to pay in 30 days. If you want credit, you get it from a bank or other company, and the limit is fixed. Why then would you not do the same to your customers? Allow all first customers without full convincing credentials a low credit limit, say £500 or even £200. Once they've paid that amount, you carry on until the limit is reached again. After having lots of bills paid on time, you can review and increase the limit.
However, a credit limit given you first start, may not still be the right one! A customer’s financial situation can change dramatically and quickly. You need to react also. If you have them, sales representatives can be your eyes and ears and report any worrying change in your customers' day to day business as an early indication of problems.
Invoice on time and ensure they are accurate
By making sure your invoices are issued quickly and accurately you reduce the number of queries from customers and increase your cash-flow. You must ensure all details are contained on the invoice such as:-
Get a Signed Contract of Terms and Conditions!
A solid set of enforceable terms and conditions can save your business a great deal of time and money when problems occur with a customer. Vetted Tradesmen can either review your existing T & C’s or draft brand new ones for you. Please see our more in-depth section on Terms and Conditions. Some of the more useful ones are:-
You have to remember - if they don't pay you could find yourself in court justifying to a judge why the debtor should pay. That job is 250 times harder without signed terms and conditions which can prove the position and stop any disputes.
Get to know your customer’s Purchase Ledger Department
Being friendly and helpful to your customers purchase ledger department can pay dividends when you have deadlines to met. If you need an invoice paid quickly to make monthly or quarterly targets you use a friendly relationship with your customers to your advantage. By knowing exactly when they process their supplier cheques and send them to the Directors for signature, you can ensure you call a day or so BEFORE to check your invoice has been included in the “cheque run” and that any queries or problems are ironed out at that stage.
Make a pre-due phone call to your customers
It is no good waiting to see if a large invoice is paid on time and then taking action if it isn’t. The most profitable companies are proactive and not reactive i.e. they will call their customers several days PRIOR to an invoice becoming due for payment, to ensure the invoice has been passed for payment and that there are no queries on the account. Should a dispute or query be raised, you still have time to resolve it prior to the due date ensuring the invoice is still paid on time.
THE PARETO PRINCIPLE (80/20 Rule) – Ensure your resources are directed appropriately
There is a well known phenomenon in business called THE PARETO PRINCIPLE or “80/20 Rule”. When applied to credit control it states in the majority of businesses 80% of a company’s income comes from 20% of its customers, and 20% of it’s income comes from the remaining 80% of its customers. This means if you direct 80% of your Credit Control resources to the 20% of your customers who contribute the majority of your income you can ensure you achieve the best results possible. Many companies concentrate entirely on their top customers, leaving the smaller customers to a third party such as Vetted Tradesmen by either outsourcing their sales ledger services or referring their smaller accounts to debt collection as soon as they become overdue.
Use an effective query resolution system
If a customer raises a query ensure full notes are taken and acted upon without delay. Make sure all relevant departments are notified and their help sought to resolve the problem. Where possible temporarily remove the invoice or part thereon from the collection cycle but ensure your customer is aware all other outstanding invoices are still due for payment. Should the query be valid, immediately raise the appropriate credit note and submit to the customer with a full statement of account. Leaving queries unresolved simply gives your customer an excuse not to pay!
Send Monthly Statements
Many customers will only pay on statements rather than invoices. By strategically timing your monthly statements (showing all transactions outstanding) to reach customers several days before they produce their cheque run, payments can be received more quickly.
Use effective collection letters
Nothing can replace the effectiveness of a pre-due or post-due phone calls. That being said, properly drafted credit control letters can be effective where resources do not allow for calls to be made i.e. for the lower value accounts.
Change your letters and normal collection cycle periodically
If you have customers who persistently pay late, they will get to know the type of letters you send and at what intervals. They will have the same pressure on them to keep cash flow to a minimum and will want to keep the money for an invoice in their bank account as long as possible to avoid overdraft charges and interest. If they are aware that you send four letters before taking action on the action, they will sit back and wait until the fourth letter has arrived, before making payment. This could gain them an extra months interest on the money! By changing the style of your letters and the frequency with which they are issued, customers never really know how long they have got until they have to pay, and should pay earlier as a result.
Make full use of the phone
Whilst letters have their place in credit management, nothing is better than making personal contact via the phone. You can judge by a person’s voice whether they are telling the truth or not, and once a promise to pay if made verbally, people do find it difficult to renege on such an agreement. If excuses are being made (I did not receive the invoice etc.) you can quickly resolve them and leave the debtor nowhere to run, except to pay up!
Recognise the Insolvency signals and act early
Many businesses try to trade their way out of a crisis. This can cause suppliers even bigger losses when they eventually go bust. There are signs you can look out for in customers that may give you early warning of problems, allowing you to act quickly to put the customer on stop and recover any outstanding debts. Some of the signs are:-
In such cases it would be advisable to re credit check your customer and sending your sales rep round to their premises to investigate further and ask for immediate payment of any outstanding invoices.
Make Sure that your Credit Control and Sales Departments work together
In many companies these two departments work against each other and are seen as rivals. This can cause friction and internal fighting which is not conducive to a well run profitable company. By the very nature of sales, most company representatives want to go to the marketplace and sell their product to anyone and everyone regardless of whether they have the ability to pay. Meeting sales targets can mean big bonus’s and this can make people very short sighted. On the other hand the Credit Control department often feel they are left to pick up the pieces when sales have been made to customers who cannot pay. It is their job to attempt to recover payment and their own targets and bonus’s can be affected if sales have not been particular as to who they sell to. Always remember “a sale is not a sale until paid for”. By making sure the two departments work together, everyone can benefit and the company can profit as a whole. Some examples of what each department can do to complement the other are:-