A Guide to Better Debt Collection
Poor cash flow is a common reason that companies go out of business, but for many firms efficient debt collection is not always a top priority. Middleton Partners' "Guide to Better Debt Collection" provides a range of practical tips which will help companies to address their debt collection and cash flow issues.
Efficient Debt Collection during a Postal Strike
"In my experience, over 60% of companies that have gone into insolvency have done so due to cashflow problems which are often due to poor debt collection. The effects on a three month cashflow forecast can be disastrous if spending increases by 10% and collection of debts is reduced by 20%." Mark Smillie
"Maintaining cashflow can be a struggle for any business at the best of times. In the case of an extraordinary situation e.g. postal strike, severe bad debt or a large unforeseen expense, it could lead to a potentially damaging and long term effect on the business. We have tried to highlight a few simple steps that you should consider at the very minimum to help maintain and improve your cashflow." Peter Yeldon.
In times of potential cash flow difficulties, be sure to prioritize time with your debt collection team. This key department is most often overlooked when it comes to quality time from senior management time. Work on the basis your clients will take advantage if you allow them to.
Key recommendation
Encourage your staff to be proactive in debt collecting (by telephone) in conjunction with sending out your invoices.
When a payment is due, telephone first and arrange how the payment is to be made e.g. bank transfer or arrange for it to be collected by your courier service (there are plenty of delivery services that will do this cost effectively). Normally within a three month period the clients' accounts department will become used to this and will expect your call. As a result your account will not be one that is left for another 30-60 days if they are experiencing cash flow difficulties of their own.
In the times of postal difficulties a phone call should be made 5-7 days after the invoice has been sent to confirm a) it has been received b) it is in order c) the date it is going to be paid e.g. on 30 days e) by what method. This is standard practice by one of the very best debt collection companies we know. They are able, very cost effectively, to always collect in their client ledgers and provide a forward cashflow of monies due in (very few of their clients have financial problems).
Train your staff not to be embarrassed to speak to their counterparts. Encourage them to be saying, by collecting our debts when they are due allows us to provide a high quality service at a very competitive price.
Remember at all times that bad debts are usually old debts. One bad debt can destroy many months of profit, perhaps an entire year, or indeed your company. Consider using a good quality debt collection service, or arrange for some in house training (call our "Business Help Line"). Good cash collection can transform a business.
Pre-empt cash flow pressure by speaking to your bank, warn them of the situation and inform them what you are going to do to resolve the situation. They will normally respond positively if they know you are in control of the situation and dealing with it.
We could have gone into far greater detail about debt collection but we try where possible to keep our advice simple and write in plain English.
We believe that the points we have made should be a priority for any business and if you would like further information or advice, please call our "Company Helpline" on 0845 061 6000. We would be very pleased to hear from you.
Please feel free to contact our sponsored company helpline if you have any questions.