Credit Control Tools

Seize the Day - Time to Consider!

We all know cash-flow is the life blood of a business. Our accountants have been shouting about it for years (“you can’t spend profit!”). However, collecting money owed is a critical business process.

You may be forgiven for thinking in recent times that the legislative world is set against you for using the law (which is on your side) to recover those monies due. No one likes to have to instruct solicitors or commence a legal action, but in some circumstances it is all you have left.

In Spring 2015, court fees increased for commencing litigation and recovery actions.

We anticipate court fees to be considered again in Spring 2016. In late 2015 the threshold for bankruptcy and compulsory liquidation debt rose from £750 to £5,000.

This means that for small debts, one of the key methods that was often successful in recovery of such monies, is now lost.

Many people within the insolvency profession, the Insolvency Service and throughout Government agree that £750 was too low because it was outdated; having been set in the 1980’s and could lead to the “vexatious petition”. But for the small business owner, who issues small invoice amounts, this tool is now harder to use.

Everyone acknowledges that there is always the balance to be achieved between costs of recovery and benefits of recovery. At some point credit control has to draw the line and chalk it up to a “bad debt”. That line is becoming easier to draw and may even mean the small business is working for free!

The key to credit control is to have good basic practices in operation from first contact with a potential customer. Do your “background” homework and consider doing the following:

  • Ensure you have a good credit account opening form that identifies exactly who you are going to do business with. Is it a partnership, sole trader or company?
  • Consider obtaining a credit reference report
  • Set a credit limit and stick to it
  • Consider cash on delivery initially and then gradually provide credit terms as your relationship develops
  • Take credit references - ask other suppliers how they fare
  • Ensure you have up to date terms and conditions of sale that clearly identifies
    - Credit terms
    - Retention of title
    - Late payment of invoices interest
  • Ensure you have clearly documented systems about credit control and ensure every sales person understands what will happen if customers do not pay on time
  • Ensure your debt chasing letters are clear, concise and ready to use

It is also essential to adhere to the systems established and maintain good notes of recovery progression - on day one you need to be thinking “if this goes before a judge in a court, how can I evidence things?” Build your evidence portfolio as you go. Demonstrate that you have attempted to recover monies directly and that court action really is a last resort.

There is always going to be a bit of a conflict between the sales person and the credit control person. Good, open communication is key to success. But what happens when all roles are held by one person - and it’s you? You either consider employing someone to do the role, or you outsource the task. The decision about how far you take credit control always lies with you - it’s your money after all.

Weigh up the costs and benefits. Do not forget to consider the impact of a broken sales relationship with the non-paying customer. Keep in mind that you are owed the money for goods or services already
supplied.

For more information about credit control advice, or guidance on recovery options, contact Jeremy Oddie, Paul A Palmer or Julie Beavis on 0161 817 6100.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business