To manage receivables effectively, it’s important to know the rest of your business. Who the staff are in the other business units, what areas they look after – and which customers they manage.

To better understand your customer and their potential credit issues, a formidable weapon in your credit management armoury is the company’s sales force.

The sales team, or account managers, are your agents in the field when you need information on a customer. They are on the front line, communicating with that customer face-to-face, and over the phone. If they’re a good sales team, they will have regular contact with your customer. As it’s their job to know, the account manager will know what the customer likes – and what they dislike. How they like to be contacted, the tone of the contact, and the customer culture are all integral components of keeping both parties happy when it comes to managing that account. If you start experiencing issues with a customer’s payments, contacting the appropriate account manager should be part of your process. They can answer questions such as:

• Has the customer had to let anyone go recently?
• How does the business look inside and out – is it well-kept or rundown?
• Have they mentioned a decline in sales?
• Are they quiet? Busy?
• Have any key personnel left? Are they hiring? Are they looking at redundancies?

The answers to these questions can help form an idea of that particular customer’s current situation. The information can also be used to form the basis of the action you decide to take. Delays in payment may be due to something as benign as an accounts manager going on maternity leave – or something a little more serious.

To establish a cohesive management of your customer base, with a view to strengthening and building upon the customer relationship and to hopefully growing the business, you will need to ensure the other business units are aware of what you do, how you work, and what your processes are. You will also need to understand how you and your team’s actions may affect another business unit, and the staff within those business units, and to have open lines of communication to deliver a unified, strategic management of your customer.

Use the force.

Nobody likes taking legal action with a customer (unless they’ve well and truly wronged you). But there may come a time when you’ll have to take action.

“If you always do what you’ve always done, then you’ll always get what you’ve always got.”

– Henry Ford.

It’s no use calling and emailing and sending a series of letters if you’re not getting the response you want or the action you require.

If all of your efforts for collection have failed, and the customer’s account is now delinquent, and despite you’re best efforts, you still haven’t been paid, then legal is – and should always be – your last resort.

You can handle this matter in-house with your own legal team or solicitor, or you can outsource the handling. This is entirely your choice, and there are benefits – and risks – with both options.

If you do decide to outsource it to a third party or mercantile agent, you need to take some care.

Make sure you have a good understanding of their process: their cost structure, their ability to communicate and what it is they’re communicating to your customer as your representative. Make sure they deal with your customer in a tone and manner you find acceptable.

Before you engage them, meet the agent personally, to get an understanding of the above factors, and of their own culture. Your customer is key, and there is always a possibility they may come back and continue trade.

Ensure any action taken is approved by you. Any action requiring court or legal notices other than a letter of demand must be seen and approved prior to the agent handing it over to their solicitors – all of this will incur charges, and you need to be aware of what these charges are, and whether you agree to them.

If the agent is unable to collect, and statements need to be issued, the cost of this action needs to be weighed up against the value of the outstanding debt, and therefore your approval must be required. Does it make sense to spend hundreds, perhaps thousands of dollars chasing the debt, if the debt is worth only a fraction of the cost? (No.)

If you do refer your outstanding accounts to a third party or mercantile agent, then you need to draft and implement a process both parties can agree to, and then review these accounts on a monthly basis with the mercantile agent.

But most importantly, if you threaten legal action, you must follow through – never make a hollow promise.

Delinquent accounts – sounds like something for the juvenile system, doesn’t it? Would it shock you to know that in 2011 approximately two thirds of all Australian trade credit falls outside the standard 30 day terms?*

So what does this mean to the average business? Quite simply, that you’re waiting to get paid, and while you’re waiting, you can’t invest that missing money into gaining further revenue or improvement for your own business. Or else you aren’t paying your own bills because you’re waiting on your customer to pay theirs.

So, what do you do if an account falls in arrears?

If you’ve followed your collection process and you’ve sent your reminder notices and still haven’t received payment for your goods or services, and it doesn’t look like your customer is budging on that any time soon, then maybe it’s time to take the next step. This isn’t personal, this is business, and if you don’t mind this portion of the business, you may lose it.

Just as you have a credit application process, documented terms and conditions, and collection process, and your reminder process, it’s just as important to have a clear procedure for delinquent accounts and further escalation.

Observe your trading terms and enforce them.
For example, if your terms state payment in 30 days, and the account hasn’t been paid after 40 days, then it’s time for the account to be placed on credit hold. You’re not mean. You’re not aggressive, you’re not wrong.

This action shouldn’t take your customer by surprise – they’ve agreed to the terms, after all. They know the consequences of failure to pay on time. If you’ve been following your collection process of regular contact with your customer, then it will be obvious to them why you are taking this action.

Communicate the action.
When you do put your customer on hold, you need to communicate it to all relevant parties. This means informing the appropriate account manager, and definitely the customer – think of those uncomfortable, embarrassing moments when you try to use your credit card and it’s declined. Nobody likes a nasty surprise.

Some account systems can be set up with an automated email, but our recommendation is that initial notice is preferably done via the phone. Just as your collection process has a high emphasis on phone contact, so too should your delinquency process. If you feel there isn’t appropriate focus being paid to your account, escalate this notice up the customer’s tree – try for their account manager or the CFO where possible. At all times, though, keep your lines of communication open, and listen to your customer.

Get it in writing.
We’ve all heard it. The cheque is in the mail. Or, sure, I’ll organise it this afternoon. Whatever the arrangements are, if a customer has agreed to take any action, ensure these arrangements are in writing and agreed to by both parties. Just as with your terms and conditions, though, make sure you enforce these new arrangements. If you don’t, you run the risk of being fobbed off when you attempt to follow up again, or your customer may use further delaying tactics.

If all else fails, escalate to your legal team.

Have an issue with delinquent accounts? Contact the Admin Plus team for further information on our services.

*(Source: Dun & Bradstreet Trade Payments Analysis)

Some businesses struggle with the whole invoice process – from calculation through to collection. Knowing how to collect your payments, how to write a reminder notice and when to send a reminder notice – can make the collection process considerably more efficient, and end up saving you money in the long term.

As with all other facets of credit control, having a process for your reminder notices is pivotal to not only obtaining that late payment, but also in maintaining that all-important customer relationship. It’s one of those ‘awkward’ moments in customer communication, and preparing for it before it’s required can take a lot of the sting out of the experience, both for you and your customer.

Some companies use an automated system, but this can actually cause more issues to arise. If your system sends automated reminder letters and notification of overdue debt, we recommend those systems are regularly and vigorously tested.

1. Test to ensure the notices are delivered to the right contact and email address.
2. Test to ensure the content of the debt is correct.

People are not stationery objects. The correct contact from three months ago may have transferred or been promoted within the company, or may have left the business altogether. Or perhaps their email address has changed. It’s important to ensure your notices are getting to their target, otherwise that automated email is as effective as throwing a brick at a dartboard. It won’t hit or stick to the target.

It’s seems obvious, and almost trivial, but ensuring that the system is gathering the correct data from the appropriate and accurate sources is a cost-saving exercise in and of itself. When invoice amounts, references, or even dates, don’t match up, not only does it result in an incorrect payment, it costs your company in resources and time in trying to correct the problem, with the added bonus of a negative, incompetent impression for your customer. The data in those reminder notices must be correct and accurate as at the time of despatch.

If there is a way in which to tailor the notice to the customer – do it! Particularly if you’ve established regular contact with your customer regarding the debt and payment up to that point through your collection process. It helps the relationship more than the generic email drop ever can.

Here is a basic outline for your Reminder Notices process:

1. First Notice – this is your little wave hello. A gently worded ‘the above invoice fell due [insert date]’ etc., may be enough to spur your customer into action. It must follow the terms and conditions agreed upon at the point of the customer account setup.
2. Overdue Notice – this is your little nudge. ‘Your account is now overdue and rectification is required as a priority. If payment has been received…’etc. It’s a little more assertive, but also offers a face-saving option for your customer.
3. On Hold Notice – this is your little alarm bell. ‘Your account is now on credit hold due to outstanding payment,’ followed by the instruction that you are withholding further supply of goods/services, and that legal action may be taken unless the situation is rectified immediately.

Your focus should always be on your customer, and always follow up. Don’t rely on these documents as the only collection you have. Your customer contact may throw the letter in the bin, or automatically press delete. Always follow up the notice with a phone call, with the aim to resolve the issue.

If all else fails, then you may have a delinquent account on your hands, and you’ll need to refer the matter to your legal team.

People like asking people for money about as much as people like being asked for money. Not a lot. There is a way, though, to take the pain out of your debt collection process.

It’s important to actually have a debt collection process, for starters. Don’t leave it too long before you start to follow up on late payments. If you have a routine for collection and timing of collection of invoices, you can save yourself and your business a lot of time and expense later on.

Believe it or not, it’s also an opportunity to build on the quality of customer service delivered by your company. Successful business is based on customer relationships that are loyal and strong. Utilising customer service as a level of support for collection service can actually help strengthen your relationship with your customer. In order for this aspect to work, though, you (or your company) need to be in regular contact with your customer PRIOR to the invoice falling due.

You don’t want the customer to have that hunted feeling whenever you call. “I only ever hear from you when you want money” is what you say to your teenage children, not what your customer should say to you. Keep in contact with your customer, to see if there are any problems. It is easier and less costly for a company to retain their current customer base than it is find new customers. This can be done through communication and respect. A simple, regular phone can go a long way when it comes to monitoring the performance of a relationship.

• Do you have all invoices?
• Are you happy with the service/product?
• Are there any problems with paying?

These are questions you can work casually into a conversation without it being all about payment, and without it being threatening. If any issues are highlighted, you then have the opportunity to resolve them before the invoice falls due, thus paving the way for on-time payment – and impressing your customer.

But what if your customer doesn’t pay?

If the customer has not expressed any issues throughout your regular contact, yet payment is still late and ongoing, a good credit controller will think ‘cash flow issues’, and start a follow-up investigation. Not only through the normal credit avenues, but through your own in-house investigative tools. Talk to the sales team who might drive by the customer occasionally, or customer service agents who deal with them regularly over the phone… these are your ‘eyes and ears’, and you can use them effectively.

If the customer still hasn’t paid, then it’s time to address the situation. It’s crucial to have urgency in the process – but nicely, nicely. Phrases such as “if you don’t pay, it may affect supply of continuing service and goods” can be made in a non-threatening manner, and alerts your customer that they are in non-compliance with the terms and conditions. Where possible, you want to keep their continuing business.

Communication can be made either by email or by phone, but if there is no response, than the best form of communication is always by phone – not email. Grammar, punctuation, spelling – it’s all clear cut on the page, but the tone is always subjective to the reader – not the writer. The impression, and therefore emphasis, can be misconstrued from an email. Also, an email may not reach its intended target as individuals may move within the business, or leave it altogether.

The best form of communication, at least to start, is via phone. You can hear the tone in which words are said, you can ‘read between the lines’, and possibly hear what your customer is not saying. Is the conversation comfortable? Terse? Pressured? Surprised? Are they listening, or distracted?

A good credit controller will then gauge the next course of action, and if necessary, the level of escalation. Is the relationship strained? Why? Are they only hearing from you, the credit controller – what about their account manager, customer service, etc.? Are you possibly losing sales as this customer withdraws? Are there areas within the relationship that can be improved to not only ensure payment of this invoice, but several more in the future?

A customer is not just one order – it’s important to remember that in your collection process, and to treat them accordingly.

For more information on debt collection services, contact the Admin Plus team.

Many businesses have learned the hard way how writing terms and conditions for trade and sales are vitally important for safekeeping your business. We’ve all heard it – did you read the fine print? Well, this post is to illustrate just how important it is to a) have the fine print, and b) to read it.

Having well-drafted terms and conditions is a critical part of doing business, and should form part of your base documentation template for each new customer. It builds the skeleton of the whole trading relationship, and governs all future trading with a company. From a service level agreement through to designing your website, that fine print outlines who does (and pays) what, when.

Terms and Conditions outline payment terms – due when from invoice, upon acceptance of order or upon delivery, part payment, full payment, etc. Do you pay the freight and charges? Or does the customer? Along with default, GST quantities, who is responsible for the title of goods… You really need to ensure that both you and your customer are aware, and more importantly, agree, to these terms. Terms and conditions also detail what kind of information you can gather regarding your assessment for credit for that company. Documented terms and conditions also encompass IP, warranties on goods and services, liabilities – the entire legal aspect of trading with a company and supplying goods and services. No terms and conditions is your own version of 50 Shades of Grey – it opens you up to grey areas of trade, and can lead to substantial and aggravated loss.

Benefits to having your own terms and conditions:

• Minimise potential conflict – with documented terms and conditions, you have a clear understanding between yourself and the customer with regard to responsibilities and payment. If any issues arise, this is the first port for resolution.
• Effective debt collection – having a clearly stated, simply defined and agreed upon process for payment can streamline your debt collection into an effective, efficient process.
• Protection – terms and conditions provide a disclaimer of liability, warranty, force majeure, etc.

Risks involved when trading without terms and conditions:

• Lost or late payments – if you have no agreed terms, there is no way to enforce payment in the time you want – or may need.
• Loss of customers – nobody likes an unpleasant surprise when it comes to money, especially customers. This can create a negative impact both on the customer relationship and on further sales in the pipeline due to non-payment or cancelled orders.
• Working capital – if your standard terms are 30 days, and your customer’s standard terms are 90 days, this delayed payment can mean your business is lacking vital working capital for an unplanned period.

In essence, Terms and Conditions are your friend. Get to know them intimately, and make sure you introduce them to each new customer.

For further information on drafting or reviewing terms and conditions, contact the Admin Plus team.

At Admin Plus, we recognise how valuable a formalised credit application process can be. Providing credit to customers can result in further sales, increased trade, but it can also lead to risk – what if your customer can’t pay? Or won’t?

Incorporating a defined credit application is another facet of credit management, and critical for ongoing interaction with your customer. It’s also a way of screening your customers – a good, safe client versus a risky, potentially costly client? Knowing these important details means you can make an informed decision on who you do business with, and also how you manage that relationship.

Here are five reasons to establish a practical credit application process:

1. With a credit application process, you know the correct legal entity of who you’re dealing with. It is imperative this information is true and accurate, for any cases of conflict or legal action.
2. Based on the information provided in the credit application, you can ascertain previous trading partners, and approach for trade references.
3. Ownership of the business as per the credit application form gives you the data you need to obtain financial investigative reports.
4. Once the credit application is acknowledged by the customer, it means they have read, understand, and agree to abide the defined terms of trade and sale.
5. Security interest is established via the Personal Properties Securities Register (PPSR), which is governed by the Personal Properties Security Act (PPSA). This is absolutely critical – in order to register your customers, you need to reference the correct legal entity, otherwise it renders any claim you may have through the register as null and void.

Essentially, you are providing your services or products free of charge – until you get paid.

If you have any questions on credit applications and the associated benefits and risks, contact Admin Plus, for all your Managed Receivables needs.

Actively managing your credit control is vital for maintaining a positive cashflow, but many businesses struggle with it. Unfortunately, losing focus on credit management can often mean losing revenue and profits.

Credit control is not necessarily debt collection or debt recovery. Properly structured, credit control can potentially avoid having to write off debt, or organising a collection agency (at a cost) to recover the payment for you. In other words, good credit control means a good bottom line.

Some issues companies and businesses, regardless of size, face with credit control and credit management is the time it takes, the attention, and the resources. It can be complicated, it can be a minefield for customer relations, it can be time-consuming, but it is a resource that could and should be managed well.

When you don’t receive payment upon delivery of a product or service, you effectively give your customer a line of credit. While your customer has credit – and the product or service you’ve delivered – you still haven’t been paid. You also have to pay YOUR suppliers, and if you’re not receiving your payments, your ability to pay your bills will be affected.

If you have a small customer list, managing your credit can just be a simple case of dedicating time on a regular basis (at least weekly) to following up on your invoices. For larger companies, or those experiencing accelerated growth, managing a growing list of clients, as well as keeping track of invoices, payments and debts, can become challenging.

Here are three tips to help you manage your credit control:

1. Credit applications – know who you’re dealing with, and agree to terms.
2. Collection process – establish a practical, efficient process of invoicing out, following up and collecting payment
3. Delinquency action – be prepared to abide by the agreed terms. This includes putting a customer on hold if their account becomes delinquent, escalating the matter to the owners, or possibly even to legal.

Before getting to the legal stage, though, there are a number of practices that can be actioned to avoid further costs, maintain that customer relationship, and brighten up that bottom line.

For more information on credit management, contact the Admin Plus team.