Posts Tagged ‘Roger Mendelson’

  • Calling in the collectors – Print21 magazine feature

    No matter how well your contracts are designed and how active your accounts department, there will come a time when a customer’s account becomes overdue. This is not the moment to hesitate, says Roger Mendelson—it’s time to call in the professionals.

    In my previous two articles (Print21 October and December 2011), we looked at why printing businesses should have a credit application form for all their customers. We then looked at the importance of incorporating commercial trading terms into the contract you have with your customers and the benefits of setting up an internal collection system and ensuring that you stick to it.

    By following those earlier steps, you will reduce the risk of losses from bad debts because you will significantly reduce the risk of granting credit to a customer with a bad or unproven track record. You will have improved your cash flow because you will have ensured that you have billed the right customer entity and that adequate steps have been taken to follow up the overdue account.

    However, no matter how good your systems are, you will still end up with accounts which have moved from the overdue account category to the potential bad debt category. If the earlier steps have been followed and the account still remains outstanding at 90 days from date of invoice, then the trigger point should be reached for further action to be taken.

    If the customer perceives that you are floundering and are failing to maintain the pressure to pay, they will treat this as a sign of weakness and you will find that your account will go to the bottom of the pile and other more pressing suppliers will get paid ahead of you. Businesses that are suffering cash flow problems become adept at picking out the serious creditors from those who appear to be hesitant and they will exploit the weakness of hesitancy.

    My suggestion is that your overdue accounts be auto­matically referred to an external collection agency after they have reached 90 days.

    There will be cases where the referral should be much earlier than this. This will apply in the cases where the customer is ignoring phone calls, bouncing cheques and breaking promises. If your trading terms have been properly drafted, they will include a provision which provides that in the event where the account is referred to a collection agency, the customer will be liable for all commission and costs incurred by you.

    If you incorporate this simple provision in your trading terms, then you will effectively pass the full collection cost on to your defaulting customer, provided that the agency achieves 100 per cent recovery. Use of this clause should act as a powerful incentive for you to outsource your collections at the 90-day mark.

    Geared for results

    There are a whole variety of reasons why a collection agency can achieve results which you are unable to achieve internally.

    A major reason is that they are completely unemotional about the account. They do not know the customer and do not suffer from the irritation, angst and annoyance that go with dealing with a bad debt.

    If the service provided by the agency is totally and unambiguously ‘no recovery—no charge’, then the agency has every incentive to collect your overdue account as quickly as possible. In effect, it is sharing the benefits of the outcome from a successful collection with you, because it only gets paid if it achieves recovery of the account.

    In many cases, a collection agency merely formalises the process and provides the impetus to pay.

    Your focus should be on running your printing business, not chasing debts. Collecting your overdue accounts is really a back-room role for your business and is one which you are not adequately equipped to handle properly, beyond a certain point.

    The situation with a collection agency is different because its primary business activity is collecting debts. Accordingly, it will have processes, trained staff, KPIs and all the tools necessary to ensure that it handles debt collection in an efficient and productive manner, designed to collect as much money as possible in the shortest time period possible.

    Don’t let debts grow old

    There is a clear relationship between the age of a debt and the chances of it becoming a bad debt. For each month which passes, the chance of an overdue account becoming a bad debt increase significantly.

    For starters, the customer will not be interested in main­-
    taining a good track record with you because they know the damage has already been done. Accordingly, they will be developing a relationship with another printer and is much more likely to pay that printer promptly than to pay your overdue account, for the simple reason that he will want to obtain ongoing credit with the new printer.

    In addition, there is an increasing risk that your customer will end up going bankrupt or going into liquidation. The fact that your account has not been paid is an indication that their financial position is weak and there is a real risk of it going into liquidation.