In Focus Collections
Left-right: Perry Burns; Stephen Kiely; Laural Jefferies; Emma Ryan >>
policies you might put in place are potentially academic, but it becomes
practical if somebody raises a red flag and says you have not thought of something, or have been unfairly cavalier in your attitude.
Do you think that there is sufficient awareness of the impact late payment has on the wider business landscape? AP: The simple answer is no, but that is nothing new! I travel across the country delivering training and consultancy to organisations, and eight out of 10 have never heard of late-payment legislation that is there to support them. Many clients see late payment as a necessary evil, a condition of doing business. You know we have a problem when we are surprised we are paid on time!
CE: There is a statutory instrument that is currently being worked on, signed off on by the minister for small businesses Andrew Griffiths – who is our local MP – to help SMEs. It says that, if an authorised body believes a customer has a bad deal in terms of interest or terms, then they can apply to the court for an injunction to vary the terms. I thought it was an interesting idea because it is supplemental to the existing late-payment legislation, which has been quite effective.
KM: If you have a customer who regularly pays late, and you know how much, then you can build that into your margin calculation. So, if they happen to pay you to terms, then your margin has increased. Fortunately, it is the smaller companies, if you are a larger company yourself, where you can dictate that they will pay the late-payment interest.
CE:We act for a client in the construction industry, 50% of their clients are blue-chip, and they will waive late-payment in regards
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to these larger clients, who they want to get repeat business from, even if they pay late, but the smaller firms, they will insist on the interest. I would say that, in about 50% of cases, we will get the penalty interest plus reasonable legal costs, which makes it quite a good recovery exercise.
LC: I find that, for clients and debtors, we get the call when the creditor has done all their internal processes, but quite a few will still not know you can add penalty interest; they say they have never heard of it. Likewise, the debtors are not applying it even, maybe they do not know that they are allowed to do so. So I am surprised by the number of people who have not heard about it.
It has traditionally been thought that the third-party effect will often tip people over to pay. Is it still effective as a part of the collections process? AP: Yes, I believe it is still effective as a part of the collections process. Those organisations that see a third party as part of the credit-control lifecycle, another tool in the kit to be deployed when needed, see real benefits. It is not a panacea for poor credit control, sales, or systems, but properly integrated, it does have an impact.
DM: Commerciality comes into it, but when you enter into an agreement to supply a client on a credit basis, you both enter into an agreement. The seller agreee to provide the goods and services, and the buyer agrees to accept those goods and pay to agreed terms. I have never known a client who has taken umbrage at being asked to pay after they are late, and even if you put them on stop or restrict further supplies, I have never known a customer to not use us again. Because all that we have done is to highlight that they have failed to keep their end of the bargain, and they will know that. You just have to be strong enough to say ‘I am sorry, we have now reached the point where we cannot help you any further on credit, and you are running the risk of hearing from our solicitors by a given date if it is not cleared’.
HJ: Bringing in a third party should be a last resort. By this stage, all hope of trading with the debtor either on a credit or pro forma basis is lost because of the damage using a third party can do to the relationship. We seek to use the firm’s existing relationships to recover the outstanding debt which we feel is more effective and supportive of the client, and ensures that we retain the sales line, even if on different terms moving forward.
If you have a customer who regularly pays late, and you know how much, then you can build that into your margin calculation
NW: I think people consider it to be almost their right to be given credit, whether it is consumer or commercial . They think they are entitled to it because the whole world has gone that way, and then if you are in trouble with your credit cards, you can pay as little as £1 per month. We get situations where, if we have had to send a debt out for collection, and they still want to buy from us, sometimes they cannot quite grasp the fact that they have not been paying on time, and that they now have to pre-pay. CCR
April 2018
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