In Focus Commercial Credit
Relationships vs penalties: a credit manager’s dilemma
How should you weigh the balance between taking a hard line and giving time to pay?
Andrew Everett Head of recoveries, Fleximize andrew.everett @
fleximize.com
Striking the appropriate balance between maintaining a relationship and penalising late-paying customers is often one of the trickiest parts of credit management. Sometimes, it can be all too easy to apply
a fee structure which is set in stone. However, is this really going to make a client pay, or would you be better served with a two-way strategy of openness and trust that can be built over a length of time, and which could better benefit your company?
Can’t pay or won’t pay? Undertaking a review of your customer should determine whether a late payment is only a temporary hiccup or a sign of a far deeper problem. If their payment record has been good to
date, you may wish to delay any penalty fees as a gesture of goodwill. This could be the ideal solution if the problem has arisen from one of the client’s own customers failing to pay on time, for example. Reviewing a customer’s account should also tell you whether a financial penalty will
make a client pay, or have a negative impact on an already stretched business.
Other considerations Looking at a client’s account is just a starting point, however. There are plenty of other questions to consider before deciding upon the best course of action: l Do you feel that a relationship formed over a period of time should allow you to trust your customer and provide more time for a payment? lWhat is considered a reasonable amount of time to give for the overdue payment to be made?
l Does your customer have a significant reason to pay other creditors instead of you? Do they, for example, value your relationship enough to make a payment when others may apply significant fees or interest, which will prove detrimental to the cashflow of their company? l Does your contact strategy enable you to grow and develop a relationship with your customer whilst, at the same time, complying with your recoveries policy? l If a client believes your business to be soft, will they risk the relationship to keep funds within their own business for as long as possible? As well as thinking about your client, you
Internal communication and transparency remain key in any decision to impose fees and maybe escalate to third-party collection
also need to consider the impact on your own company. Will penalising your customer cause issues for a sales team struggling to hit targets? What costs are you incurring by payments being late? Is the company’s share price affected by poor collection results? Internal communication and transparency
remain key in any decision to impose fees and maybe escalate to third-party collection.
Case by case Of course, this just scratches the surface. At the end of the day, every business is different, and every customer will have their own unique requirements. We are all aware of that ‘one account’ which, for various reasons, cannot have fees applied or even be placed on hold. Ultimately, you are responsible for cash
coming back into the business, so the way that you balance your client relationships with the imposition of fees is critical. CCR
January 2018
www.CCRMagazine.co.uk 17
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