Best practices in credit control and what you can do when it does go wrong.
The types of things that you need to consider to put yourself in the best situation possible.
What you need to think about when considering your credit terms.
Four key areas that you need to consider firstly you need to know who your customer is you need to keep good account records and have a look at the payment history and you also need to consider what the risk of them defaulting is. Have a think about what you know about your customers do you know who or what company is behind the trading name.
The details that you need to know when trading with some traders or individuals as a partnership.
Note it’s important to have the full name and title of the person that you’re trading with because these details will be required should you need to commence legal proceedings against them. It is possible to use just an initial, but it is preferred by the court that you do have the full name but obviously this is also helpful for enforcement purposes. When dealing with solve traders or individuals as a partnership it’s also important to note that it is their personal debt, so for example with the partnership between two parties, they are both joint and separately liable for this debt. If they shut down the restaurant and go work for somebody else the debt will follow them and they are still liable to pay you the monies that are outstanding. You may trade with limited companies or limited liability partnerships, it is important to note that limiting companies can still have trading names. So for example you L M White Limited trading as Saga Restaurant. When trading with limited companies or limited liability partnerships, it’s important to know that the directors of these companies are not personally responsible for any money which is outstanding to you unless you have a personal guarantee from the directors.
We’ve just discussed that it’s important to know who your debtor is and it’s equally important is to know how to contact them if you need to so you need to keep your address and telephone numbers and things like that up to date, as well as the the name of the contact that you have at the company. now on this slide we’ve got an example of good customer record-keeping and on the other side not quite so good as far as the names of the account goes and who you’ve actually been trading with now. As you can see on the left hand side the the good kind of account keeping we’ve got the saga restaurant limited again initially as I sold trade and eventually be joined by Tim Edwards as a partnership things are going well and the company was incorporated as saga restaurant Limited in February 2006 for tender 2009 things not going so well which ultimately went and it up with the saga restaurant limited ceasing to trade and was eventually dissolved in January 2010. Now as you can see Tim Edwards continue to train his saga restaurant by as a sole trader he changed the name to the rotten Dory and eventually sold it to Mike Matthews in February 2012 now on the other side you’ve got an example of not so good account keeping where you can see that you’ve got neat mr. Lee white is responsible for the liabilities of the company all the way up until October 2012 and as you can see from the from the other side that his personal liability actually finished in February 2006. Now if you pursued in front of debts and cleared after this point you may have Leslie surprised when he turns out that says that he’s not actually personally liable and it’s got the paper to prove. So this is why it’s important to keep in account records of today now.
Keep an eye on who’s making payments and who’s placing orders. For example if you you’ve got the account name is the individuals mostly where to Mr. Tim Edwards and you suddenly start receiving checks from salga restaurant Limited the alarm bells
should be really ringing to suggest that you do pay your account records also or equally as important. If not more is if you’ve got the name in a restaurant as a machine company so saga restaurant limited you start receiving checks in the name of an individual it may be the limiting company’s not doing so well and you need to get your account records or today or maybe even consider whether you should be training with a lot of credit basis at that point.
Another way of keeping your account record up to date is to discuss each customer that you’ve got with your reps that are out in the field to see if they can tell you anything about any changes that are going on with regards to its and customers or any new faces or any different things like that that’s a good way of indicating when things are changing.
When you open an account or you should have all the details there that you need should you need to take any enforcement take any debt recovery action against some of your customers and ultimately it’s important that you keep these up to date as well and early and then the slide thing we’ve got there. Finally we come on to what the risk of them defaulting is now I’ve put the payment history there cuz obviously this is closely linked closely linked to the account records is the payment history.
I appreciate your payment history is going to be different for long-standing customers than it is for me customers however it’s always to keep records of their payment history set up the always previously paid on time or any consistent late payers. If they are constants that late pays what are the reasons for late payment or do they keep you quiet with part-payments but only really to bring the account up today where they want more stock.
Another thing to keep a good track off is do they only usually pay when you chase them and if they do what actions do you need to take before they do pay. For example we’ve got one client who has issued claims against the same company three or four times and because this company always only responds when they win the issue legal proceedings and they usually pay fuck quite quickly following the claim or after judgment has been entered. So keeping this kind of records on their account that’s the less our client know that if this customer defaults again they go straight into legal proceedings because this is the best way in preventing payment. Now you can appreciate not all debtors are the same so this is not going to be the right way to go for each individual and better that you have but obviously keeping track of things like this can be a good way in determining what debt recovery methods you use as well as whether you should allow them to work on a credit basis or not.
One of the key things you can do to assess the risk of defaulting is conduct regular credit checks particularly important for newer customers where you don’t have the account records of the payment history it can give you a good idea of what they’re like with their other creditors. Credit checks can be easily done by logging onto the Experian Equifax website or you can have a look at different credit check agencies that will provide you with reports. Please that we’ve put the bullet point is ready in this credit checks however in past companies have been very good at conducting credit checks when they open up accounts but obviously in today’s economy things can change quite quickly so I recommend doing regular credit checks or not only your new customers but also your existing ones. If you are using credit check agencies one of the good ways of keeping track of how well your customers are doing is by having a look at their credit score. Well important to note that one what they’d be good for one credit agency the score exactly same to go another one might be slightly different or say a score of 600 it could possibly be very good score for one credit absolutely awful for the other one so it’s important to be familiar with the credit check agency that you use.
Amongst other things carrying out credit checks will also let you see whether they’ve gotten you registered judgments and it will also tell you whether the judgments are satisfied or not satisfied. This is particularly useful when constantly on what the most appropriate debt recovery method is because if you if there’s a judgement register on that credit file which is marked as satisfied you know that they have had legal proceedings against them in the past however they have worked because the judgment is now showing they’re satisfied and this may lead you to think that is the most appropriate debt recovery technique is to go straight down the legal proceedings free rather than anything else.
If you are confident that you know who your customer is if I put account details they’ve got a fairly good payment history and the risk of them defaulting is low these are things to think about if you do decide to give them credit firstly make it clear and then when payment is expected it’s not really disclosed but you’ll be surprised at how many times we see invoices without a date of which payment is due by. Secondly make it as easy as possible to pay I’ve seen companies that limit themselves to being paid by check. However obviously the more options that have got to make payment either by direct debit or back payment the more probably they’re gonna pay. Finally it if possible and all appropriate you can offer from an early incentive payment this keeps the cash flow coming in.
What can you do if it does go wrong. Firstly you should have a clear procedure in place which is specific to your type for a debtor please note that not all debtors are the same and you may have to have several different approaches depending on what you know about the debtor and what your previously relationship has been with them.
One of the most important parts of what to do when it does go wrong is to not delay in chasing for payment. If you’ll find that if you allow your local customers an extra so many days on top of what has already previously been agreed for them to pay they’ll quickly under the habit that it or the impression that it’s okay for them to pay late and this can obviously start affecting your cash flow.
Don’t be afraid to seek independent or professional help you may find that customers where you have taken legal action against them for example if you instruct solicitors to to commence legal proceedings against them to recover the money that’s owed you’ll find that they’re taking more seriously and those creditors that don’t follow up their threats. We often find that once a customer or if a client continues to trade with customer ones when we carried out our debt recovery processes and that they are they pay more readily in future because they you’re higher up the list of their priorities of people to pay because they know that you do follow up with your threats rather than just threatening.
If you’ve done all of the in-house tracing that you’ve got available maybe these send letters and have numbers telephone calls with the debtor then you don’t seem to be getting anywhere you may wish to issue to solicitors for them such as drive phones to take some of the following options that are available to you. Firstly you have our telephones collection service another option is legal proceedings with a view of obtaining judgment and moving into enforcement actions and finally you can consider insolvency. I’ll telephone collection service here at my phones is a series of letter headed letters each one followed up by a number of telephone calls. We do have very good results from our telephone collection service and partly due to the fact that is is readily known debtless respond quicker and more often to solicitors letterhead in papers or on telephone calls than they do to your own in house letters. For us telephone collections is seen as more of a softer approach it may be suitable where the debtor was always paid in the past but now that default on payment you’ve been unable to contact them and often it’s used in circumstances where you’ve quite a business relationship to continue so you’re a bit reluctant to go straight into legal proceedings
During telephone collections we attempt to resolve any issues that you might have and attempt to negotiate a settlement one of the about the telephone collection service is that were paid on a commission basis so if we can’t provoke any payment than obviously there’s enough there’s no fees for each fees to pay.
Before it’s often used as a softer approach when you like the business relationship to continue. Alternatively you may feel it’s more appropriate to go straight into legal proceedings you may find that some debtors just do not readily respond to anything other than legal proceedings. So in these circumstances we’d send them a seven day letter known as an LBA which demands payment within seven days or a valid reason for non-payment and advises them unless payment is received or contact to receive at legal proceedings will follow.
Once the county court if you claim the defendant then has fourteen days to respond to the claim if they don’t respond or if they responded that mitten amount of money which is owed to you we can request that the court enter judgment against them.
Once judgment has been entered it’s at this stage the nutritional will appear on their credit file for all of the other creditors to see when they come for credit checks and also it allows you to commence enforcement action on the judgment.
Here we have a list of the most common enforcement methods that are available to you.
Firstly on the list we have an execution against goods this is where a county court bailiff for a hike odds enforcement officer can be instructed to attend the debtors premises this is with a view of provoking payment or removing goods to sell at auction obviously with the proceeds of the auction coming towards the money she’s outstanding to you the difference between account to put bailiff and a high court enforcement officer is that accountable bailiffs are officers of the court whereas high court enforcement officers are liberty companies which were empowered by the court to enforce judgments.
Because the high quality enforcement officers are limited companies we found that we do get a lot better results from them they provide a lot better reports and because they’re mostly deal dealt with on a commission basis they do go the extra mile in trying to recover the money which is outstanding to you and the counter-clock benefit officer of the court so really it’s more likely that they’re on a salary and from our point of view with forever chasing the bailiff or reports it’s out and I get a lot in for judgments where’s the count they’re high court enforcement officer provides numerous detailed reports to let us know how they’re getting on it’s important tonight that I can’t enforce Russ’s can’t deal with any debts they’re below 600 pounds and we would always use recommend using a higher court enforcement officer where possible so it’s only on debts on the six or repels where we suggest using the caterpillar bailiff.
second on this list we have an attachment of earnings order on an attachment of earnings order this effectively transfers the responsibility and paid the debt from the debtor to the debtor’s employer now as you can appreciate the late one thing pursuing an attachment of earnings order if the debtors not employed or self employed because it’s of no use but when the debtor is in by secure employment it’s quite a good way of making sure that you receive the money back.
Obviously as you can appreciate sometimes just the threat of attachment in the earnings order its efficient enough for the debtor to contact you and negotiate a payment agreement because obviously you can appreciate them they don’t want their employees to know that they owe you the money or if they’re having financial difficulties.
so under an attachment of earnings order the designated is employer is ordered to remove a certain amount each month or week out of the debtor’s wages and pay that directly to the court the court then transfer the funds tours and we pass them on to you and it’s important though that it is a responsibility of the debtors employer to make these deductions from their wages and if they don’t comply with the order then they themselves can be summoned to court and fined.
On this list we have a charging order this is a method where the depth of the interest and although the day are coming to you can be registered against the debtors property in the same way that a mortgage is registered and though it may be that the charging order won’t provoke payment directly at that point unless it’s the threat of the charging order which which they don’t want however you have the peace of mind that you’re definitely secured against the debtors property and they can’t sell the property without either having your okay to do so in effect having satisfied the judgment or notifying you and the death that the property’s been solved for that’s if there are joint for prices rather than around the net and single over his often said that charging orders are more suited to properties where they’re open mind the single debtor as opposed to drug proprietors however in my experience the they’re just as good because the new owners of the property generally wants the child removed when they when they transfer the property over so although you don’t have the the writers they know the properties not being is holding up my consent he still had the rises in or not removing the order until papers received and that can delay things with regard to the transfer of the property.
Not so commonly used enforcement action that is available to you as a third party debt order order for a tenth order for the defendants through ten court for questioning and insolvency proceedings a third party debt order is where a third party that owns the debtor money can be ordered to pay you directly no bank and building societies can be used as third parties and in these circumstances their bank accounts can be frozen whilst payment is made directly to you.
This is to prevent them from paying everybody else the reason the third party debt order is not commonly used is because you have to know that the debtor has the forms available to pay there’s no pointing or taking a third party debt order against something with who’s using an overdraft so haven’t got the funds available.
Secondly we have the order for the defendants to attend the call for questioning this is previously known as an oral examination using this method is where the debtor is summoned to court to answer financial questions under oath it may be the case that if you alcohol could account details and payment history you may not need to use this method because you should have all the details that’s already that the or the details that you would be able to obtain however it can be used for negotiated a payment proposal and finally on this list we have the insolvency proceedings where you would be pursuing the bankruptcy in an individual all the way legal probably that’s a company now insolvency proceedings can be used as and alternative to legal proceedings or there can be used following of the more successful enforcement attempt it’s important to there when considering insolvency proceedings that it is the threat of insolvency which is important in Toronto VOC payment should you be ultimately successful in winding up a company or making an individual bankrupt it will be down to the official receiver to realize any available funds on behalf of all creditors so in them circumstances there is little chance for successful recovery so when I say is that the threat of legal proceedings with the threat of insolvency which is important is because and it can be used as a tool to provoke them to pay rather than meanwhile or going bankrupt this part of the seminar was dealt with by team Edwards and this will be available in another webinar.
Just going to give you a quick overview of what you can expect with you instruct Roy on solicitors to act on your own behalf from debt recovery matters here we have an example of the homepage of your online system where you log on to the online forms matter tracker as you can see there’s a list of things on the left-hand side and the main one that you’ll be interested in today is probably the create LBA I’m clicking on create lv8 you’ll quickly be taken to this page waking up to the debtor details and the amount that they owe you select the date at which you would like to payment by and then click create now that’s all you need to do to know the LBA or letter before actually will go out to the debtors into those post you’ll receive a confirmation email later on the afternoon when we run the process outside which just confirms that the letter has been printed and put into the post and you’re also receive an automated email on the expiry of the letter which just asked you to let us know if you receive payment or if you do wishes to continue and go ahead with legal proceedings once we have created an LBO you you’ll be able to log on to the individual matter where you can see all of the critical dates that you’ve got here down the left on the side and all of the details that you’ve got on your for example the amounts and the debtors name and address obviously for this slide they’ve been there been blacked out there there’s also a place there where you can log on send as instructions rather than is emailing directly if you prefer to do that I believe if a debtor doesn’t pay you in response to the RBA you do instructors to issue legal proceedings against them you’ll be able to log on to a slightly different part of the website which will give you a lot more details you can have all of the the claim details that you’ve got there we have real-time updates right in the middle on the current position as you can see with this one we have requested the judgment to the Kotton we’re just waiting for the judgment order to come through and on this one you can also send these your instructions and if you need us to contact you urgently you can press it you can just hit merge there as well and we’ll pick that up from there contact user priority.