Credit
control
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Credit control
can mean the difference between a business succeeding and failing. Credit control does not just mean debt collection,
although that is an important area. It also means good cash management, so
that suppliers are not paid before the due date, and so that surplus funds
are properly utilised. We can advise on
systems to manage credit control, and cash management. There should be good,
robust systems in place to assess the creditworthiness of customers, even
long standing customers, because creditworthiness can change. There should be
accurate and up to date monitoring of debts due to the business, and
systematic systems of follow up by means of statements, telephone calls and
personal visits. There should be defined and well thought out procedure for
passing accounts to solicitors or debt collectors, and systems of placing
overdue customers on ‘stop’. There should be
clear policies over the payments to suppliers and how cash surpluses should
be managed. These are all
issues where Peter Brown & Co can help. We can devise appropriate
systems, and help monitor them. We can even offer cheaper alternatives to
debt collection via solicitors in some cases, through the process of
‘statutory demands for payment’. There is also
guidance on credit control available from the Better Payment Practice Group
(BPPG), a division of the Department of Trade and Industry – for details click here In the links
after this section the main features of the routines that are necessary to
keep cash flowing are explained in more detail. The main areas
are : §
Vetting a new customer and establish
the risk o
Obtain a banker’s reference o
Obtain a trade reference o
Check the data filed at Companies House and
in other databases o
Check the Register of County Court
Judgements ·
Creating contractual documents and
terms of trade o
Give the new customer your terms of trade before
you accept the order o
Agree contractual terms o
Agree the payment terms o
Agree whether interest is payable, and
remind the customer of your statutory right to interest o
Ensure that any retention of title clause
is enforceable o
Inform the customer of how queries and
complaints will be dealt with, and discover what the customer’s procedures
are for payment to be made ·
Establish a robust and systematic
method of credit control and debt collection o
Issue precise and correct invoices at the earliest opportunity after the
transaction, and ensure they are sent to the right department o
Issue statements on a regular and routine
basis and ensure they are sent to the right department o
Have a routine system to remind the customer
about your rights to interest o
Follow up statements with email, faxes and
telephone calls on a regular and systematic basis o
Visit the customer’s premises on a regular
basis, ostensibly for reasons of PR ·
Establish continuous systems of
credit routines and of good administration o
Make regular credit checks on established
customers o
Ensure all paperwork is accurate and
complete o
Ensure staff are properly trained to take
proper steps and have the authority to do so. ·
Use all the methods of debt
collection that are available o
Understand the implications of referring a
debt to a solicitor o
Understand how to use the statutory demand
process o
Understand how to use the county court
collection process o
Understand how to use the powers to obtain
information relating to a judgement debtor through the courts o
Understand how to use court orders such as
attachment of earnings orders, charging orders on property and orders on bank
accounts o
Be prepared to agree a reasonable progamme
of debt reduction o
Understanding how to deal with insolvent
customers ·
Managing the cash that you have managed to collect o
Managing cash payments to suppliers o
Managing your bank balance o
Understanding your accounting ratios o
Ensuring cash management data is passed to
the appropriate managers The sections below contain links to
some of the specific services that Peter Brown & Co is able to offer . |
Managing money owed to you |
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Managing
the money you have collected |
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The
use of accounting ratios -analysing a customer’s
accounts |
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ask for our services click here
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When you take on a
new customer, it is very easy to become excited by the new business, and
overlook the basics. Even if the customer is a household name or is known to
you personally, there is no excuse for not undertaking systematic checks that
should be made for every new customer. It is a matter
for you to decide if there is a cutoff point below which you can take the
risk of not undertaking credit checks. It might not be worth undertaking
credit checks for customers who are only going to owe £50. You might feel
that a more rigourous enquiry should be undertaken for a customer who will
owe you £1,000, and a full detailed investigation might be merited for a
customer who will owe you £100,000. Once you have established a policy about
the degree of enquiry appropriate to the size of the credit you will be
allowing, there should be no exceptions. The policy should relate the degree
of risk to your business o the degree of enquiry undertaken. You cannot
afford the risk of not being paid. Late payment or none payment is the single
biggest cause of business failures. You need to
establish policies on the degree of risk you are prepared to take, and who in
your organisation can be authorised to accept particular levels of new
business. Clearly, a junior clerk can be authorised to grant £20 credit. The
managing director might be involved if the figure is £100,000. Business is
about taking risks, and when you have all the information about a new
customer it is possible to take an informed decision as to whether you want
to take the risk of doing business with the new customer. The steps to be
taken include :- ·
Obtain the full name and address of
your customer. This may seem obvious, but many companies
have associated companies with similar names. You need to be clear as to the precise
legal entity with whom you are doing business. A letter from them confirming
the contract details will help, as this should be on the legal
letterheading. If there is a
subsequent dispute, you need to be able to show a court who it was with whom
you did business. ·
Obtain a banker’s reference – Many people will say these are not worth the paper they are
written on, but they can often give useful information if you read between
the lines. It is often worth discussing
a banker’s reference you have received with your own bank to help you
to decode the language used. ·
Obtain a trade reference – This can be very useful, but remember that it is possible to
keep one or two trade creditors ‘sweet’ while causing payment problems with
all the others. If possible, you should choose the name of the trade
creditor, if you know the businesses with whom your customer deals. If
possible, obtain several references. ·
Make enquiries in the trade – It may be that the customer has come to you because he has
already deceived other businesses. Make enquiries with your contacts and
colleagues in the trade and see what is known about the customer. ·
Check the data filed at Companies
House and in other databases – Details about
companies can be checked on line at Companies House http://www.companieshouse.gov.uk/. Credit reports
and searches of the Register of County Court Judgements can be done online
through companies :- Dun and Bradsteet www.dnb.com Experian www.experian.co Equifax http://www.equifax.com/ Most local newspapers now
have online facilities for you to search an index of articles. It might be
possible to find news stories about your new customer that might shed light
on their activities. If your customer is a
member of a trade organisation, then a search of their website might be
informative. Your own trade organisations may also be able to help The Federation of Small Businesses maintain a league table of
late payers. It is worth checking that at http://www.fsb.org/ Another source of information, although it might seem obvious, is to
check your own historical records. It might be that six years previously you
yourself have done business with this customer or somebody with whom he is
connected, say a company with common directors, but have forgotten that you
were left with a bad debt. Vetting of potential customers is all about taking considered risks. Much of the checking can be done in house, but for bigger or more complex contracts, outside expertise can be sought. This is an area upon which Peter Brown & Co can assist. The firm can also help you develop your own internal vetting systems for new customers, to ensure that the risk of your taking on bad business is minimised. |
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When taking on a
new customer, in addition to taking up refernces, a good idea to protect
against the risk of a bad debt is to analyse the accounts of the prospective
customer filed with Companies House (if the customer is a registered company) We can help you
with this analysis to help you decide whether the customer will be a good or
a bad risk. Once you have
taken the custoner on, then the custoner’s accounts can be reviwed on an
annual basi so long as they remain a customer. |
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ask for our services click here
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You should review your debtor’s ledger on a
routine basis and establish a formal system for issuing statements and
reminders, and chasing up with telephone calls. When you have a bad payer, we can help by
communicating with the debtor on your behalf. We can also help you establish the system
you use to chase up debts. |
Continuous
monitoring of existing customers
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It is not good enough just to take up
credit checks on a new customer. An existing customer should be monitored on a
regular basis, because the financial position of a customer can change with
time. We can help you set up systems to monitor
your key customers. |
Reporting statistics and data
to managers
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The accounts department does not exist in a
vacuum, but unless sales managers and other staff are made aware that a
customer is a bad payer, then they may continue to take sales even when old
ones have not been paid for. We can help you set up reporting systems so
that this does not cause problems |
Solicitors and debt collectors
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Solicitors and debt collectors should be
used as a last resort, and we can introduce you to the appropriate
professional. However, it is now possible to sue for a
debt on line at very low cost, and for many cases, particularly the most
straightforward, you could use the on line systems. We can advise you about
when this system can bge used and when it would be more appriopriate to use a
solicitor |
Statutory
demands – a cheaper alternative to debt collection through solicitors.
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If a debt is not disptued in any way, and the
amount exceeds £750, then a stsatutory demand can be issued. This must be
carefully done, to get the paperwork right, but if a debtor does not repsond
to a statutory demand within 21 days, then you are entitled to issue a
winding up petition or a bankruptcy petition. That tends to concentrate the
minds of slow payers, but should not be used if you ever want to do business
with the debtor in future, as he may lose his gtoodwill towards you! Statutory demands are a process allowed for
under the Insolvency Act. They may be issued against individuals or against
companies, with slight differences in procedures for the two types of
entities. Statutory demands can only be used if the debt is undisputed. If
there is a bona fide dispute, then the normal methods of debt collection
should be used. In essence, if a form demanding payment is
left at the residential or trading address of an individual or at the
registered office of a limited company, the debtor has 21 days in which
either to pay the debt or to come to a binding agreement with the creditor on
how the liability should be met. Any
binding arrangement must be to the satisfaction of the creditor. The debtor
may apply to the Court within 18 days to have the demand set aside on
technical grounds or on the basis that there is no undisputed debt in excess
of £750. If application to the Court to have the
statutory demand set aside is not made within 18 days, or if the debt is
unpaid within 21 days, then the creditor has the right to present a
bankruptcy petition to the court and to apply for a bankruptcy order in the
case of individuals or a winding up order in the case of companies. Usually
the individual or company will have no defence to those proceedings, and it
will result in the automatic bankruptcy or liquidation. Issuing a statutory demand must be done
carefully and precisely to meet the legal requirements, but it is a very low
cost method of ensuring a debt is paid. Peter Brown & Co offer a service that
enables a statutory demand to be issued from as little as £30 , with any
further work after the issuing of the demand being charged for on a time
basis. Very often there is little further work to be done after the demand is
issues, as most debtors pay up immediately upon receipt of a demand. Anybody receiving a statutory demand should
always seek immediate professional advice, and Peter Brown & Co
would be able to advise. For fuller details see our insolvency page |
Establishing contractual terms and agreeing terms of trade.
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If you ever have to sue a debtor, it is
absolutely vital that the debtor cannot wriggle out of the debt on the basis
that you have not fulfilled the contract. Carefully drawn up terms and conditions of
business are not only wise, but in many situations (eg selling on the
intenet) are a legal requirement. Terms and conditions should NOT be
drawn up without proper legal advice, AND they are essential to a
successful business. It is also essential that the terms of
business have been agreed to BEFORE the sale. Putting them on an
invoice which is delivered after the goods themselves is not sufficient. The
terms should be expressly stated when the initial order is placed. |
Establishing a robust credit control and
debt collection system.
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A comprehensive
credit control and debt collection system is vital to the well being of most
businesses. We can help you
design and implement a system appropriate to your business. |
The management of suppliers’ payments
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A comprehensive
system of approving supplier’s invoices and making payments is vital to the
well being of most businesses. Not only does it help control costs, but it
helps with cash flow management. We can help you
design and implement a system appropriate to your business. |
The management of bank balances
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This is linked to both credit control and
the management of supplier’s payments. If we help you with those systems we will
also advise you on bank management systems |
The Better Payment Practice Group (BPPG) – a division of the DTI
Your
rights under the Late Payment
Legislation
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The Better Payment Practice Group (BPPG)
has been established by the Department for Trade and Industry to provide
authoritative advice on how to establish and maintain a robust credit
management policy , and offers letter templates to help with debt collection,
ideas on how to counter common excuses for not being paid on time, and an
online facility to have your credit queries answered by the BPPG’s credit
management experts. The BPPG also endeavour to keep the public
up to date with developments on the late payments legislation which entitles
businesses to recover interest on unpaid debts. Copies of their ‘Better Payment Practice
late payment Guide’ and ‘ A user’s Guide to the Late Payment Act’ can be
downloaded from www.payontime.co.uk or ordered on the DTI Order Line 0870 150 2500. The Late Payment Act entitles creditors to claim :- ·
A statutory right to interest at 2% (8%
before 01/01/09) over the Bank of England Base rate on overdue payments from
all businesses and public organisations ·
The right to reasonable compensation for
debt recovery costs incurred as a result of late payment ·
The right for small businesses to challenge
the imposition of grossly unfair terms and conditions where these undermine
the terms of the legislation. Similar rights are available in all member
states of the European Union to assist those businesses involved in cross
border trade. |
Peter Brown & Co is a trading name of Undershot Ltd, registered
in England , no 4114468. Director :-
P.Brown FCCA, FCIE,DchA,BSc.The registered office is Acomb Grange,
Grange Lane, York, YO23 3QZ.
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