Credit Control Solutions

Should you use Social Media as part of your credit control process?

 

 

The simple answer is "YES" but use it with caution. Let me explain....

On behalf of our clients, we have been using social media as a way of naming and shaming bad payers very successfully for the last few years. To prevent any potential legal claims from the debtor in “naming & shaming” you should proceed with caution and only as a last resort. I would suggest that you only name and shame SME’s and NOT “Big Brands”.

Our success in using social media to recover debts currently stands at 75%. This is to say, when resorting to naming and shaming using social media, it has helped to recover the monies owed in 75% of cases. Admittedly, in many of these cases the debtor has been less than happy at being “named and shamed” and has stated that they will never buy from our customer again. Would you really want them to buy from you again? If they are going to pay upfront for goods the answer is of course YES” Would you want to extend credit to them again though? Me thinks the answer is “NO” Why on earth would you want to do business with a customer that fails to pay you within a reasonable time?

So, in summary:

Social Media is a good way of helping to collect monies owed, but only if used with caution.

If you need any help in implementing a successful naming and shaming policy, please ask.

JamieO "Making Your Cash Flow"

Late Payment of Commercial Debts Regulations 2013 - is it worth all the Fuss?

The Late Payments Directive, known more technically as Directive 2011/7/EU or the Late Payment of Commercial Debts Regulations 2013, came into force on March 16th and should mean better protection for businesses of all sizes – from freelancers to big companies, and including the public sector – when chasing late payments.

Generally speaking, the Directive puts 30-day payment terms on contracts where a longer deadline is not mutually agreed, and allows you to charge fixed fees, statutory interest, and reasonable recovery costs on any action you take after that deadline has passed.

But just how much does that mean you can charge? Here’s our breakdown of the amounts you can charge late payers in terms of fixed fees and recovery costs, based on the original amount owed by your client.

History

Briefly, late payments legislation has been in force in the UK since 1998, when it was introduced for larger firms, and for small businesses since 2002.

The new legislation has been designed to provide some consistency when compared with the pre-existing laws, but the inclusion of ‘reasonable costs’ is new.

Statutory Interest

The statutory interest rate you are allowed to charge on your overdue invoices is often described as being 8% above the Bank of England base rate – and this is true as a rule of thumb.

However, it is worth noting that the ‘reference rate’ does not change in real time when a Bank of England Monetary Policy Committee decision is announced – instead, it is set twice a year, in January and July.

The rate set on January 1st is based on the Bank of England base rate for the preceding day, December 31st, and remains in place until June 30th of the same year; the July 1st rate is based on the June 30th base rate, and remains until December 31st of that year.

At present, the base rate has been at 0.5% for several years, and it seems likely that 8.5% will remain the statutory interest rate chargeable for some time to come.

Fixed Fees and Recovery Costs

The table below shows the breakdown of fixed fees chargeable on different sums of money owed.

The recovery costs you can claim are theoretically equivalent to your cost of chasing the debt, minus the fixed fee – so while you should not be out of pocket for chasing the payment, you won’t profit either, aside from the statutory interest.

Amount Owed	Fixed Fee	Recovery Costs
£0.01 – £999.99	£40.00	£15.00 to £72.00
£1,000.00 – £9,999.99	£70.00	£15.00 to £72.00
£10,000 and above	£100.00	£15.00 to £72.00

The ‘Recovery Costs’ column is not enshrined in the legislation, but is based on our  charges for chasing the debt for you.

We charge fixed fees of between £15.00 to £72.00 depending on which of our debt collection services you opt to use.

Jamie O’Connell, our MD had this to say on the recast legislation:

On the face of it the major change in the legislation is the ability to be able to recover your reasonable  costs of chasing (recovery costs). I view this as a significant change that makes the whole late payment legislation worth enforcing on late payers.

Companies who rely on late payments to suppliers as a cheap injection of capital may  find that the costs now outweigh the gains?

The Bottom Line

If your company raises an invoice after the 16th of March 2013 and your client does not pay on time and in full you can now take debt recovery action, safe in the knowledge that the law states it is the debtors responsibility to pay for it.

Free Credit Control Resources: Google (Update)

We are currently doing a debt collection job for our friends at Invicta Power Service and once again using Google has provided us with some invaluable information..!

We took on this job on 25th May 2010. We sent a Statutory Demand for payment to:

• The Registered Office Address
• The Directors Home Address
• and to several email addresses that we picked up from Google.

3 days after we had sent the demand, we received a telephone call from one of the hairdressing salons concerned. She acknowledged receipt of the demand and said that she would get the director to call me.

Needless to say, we never heard back from the director.

On 2nd June, I sent a chase up email to the Director and once again heard nothing back.

On 9th June, Invicta Power Service informed us that they had been contacted by the director and fixed up a meeting to discuss monies owed. At the meeting the debtor agreed to pay, but payment has not been forthcoming at the time of writing

Today 14th July 2010, I contacted the Director on his mobile phone and he "pretended" that he was not the debtor. When I pushed him, he became incredibly abusive F'ing & blinding etc. We thought this was funny and simply laughed at him. Anyway, I got my message across to him - i.e we would issue Winding up Proceedings against him if payment was not forthcoming.

After this telephone call, I informed our friends at Invicta Power Service of my telephone conversation with the debtor and said that it would be unlikely that we would recover the money for them on this occasion. The debtor is a wide boy etc.

After putting the telephone down, I took my own advice and started to do some research on Google. Even I was amazed at what I managed to uncover. It turns out the debtor:

• Received a 4 month suspended jail sentence for a physical assault of a Dr in Ashford, Kent.(incidentally, the Dr concerned was beaten up so badly that he can no longer practice as a Doctor)
• Is a Parish Counselor
• Is on "Linked In" and we happen to have several friends in common..!

The above information is very useful to me in debt collection terms, as, clearly I have established that the debtor has both an on-line & offline reputation to protect and we will obviously use this to our advantage.

Incidentally, our friends at Invicta Power Service paid us £60.00 + VAT to use our statutory demand service. For this service, we will:

• Issue a Statutory Demand for payment to several addresses and by email, fax etc
• Make one follow up phone call to try and secure payment.

In reality, we always do more work for our customers than we actually charge for. In this case, we have

• Issued the Statutory Demand for Payment.
• Sent 3 chase up emails
• Made 5 x phone calls to the debtor &
• Spoken with our friends at Invicta 3 times.

So, you know where to come for cost effective and added value debt collection

Jamieo "Making your cash flow"

I will name the debtor in due course, if we do not recover the debt, so that we can warn everybody in Kent not to do business with this guy/company

Free Credit Control Resources: Google

Do you use Companies House to help you with your Credit Control? If not you should! In our opinion, the Companies house webcheck service is a much under used resource that we are going to shout about from the roof tops in order to help reduce your exposure to bad debt!

Their webCheck service allows you to get lots of invaluable information on any UK Limited Company. You can check companies out by name or by using their company registered number. Even if you don’t know the precise name of the company, you can find them by simply typing in the first few letters of their name and tabbing through the list until you find them

You can establish basic information such as:

•   Date the company was incorporated (this is useful to help you assess whether or not you wish to do business with a new prospect. If it is newly incorporated, you may wish to ask for full payment upfront, or a deposit, or put them on an automated form of payment, such as; Direct Debit or Continuous Payment Authority)
•   Company Type
•   Nature of Business (SIC Code)
•   Accounting Reference Date
•   Last Accounts Made up to
•   Next Accounts Due (This is very useful and will highlight if they are late filing their accounts. Normally, if accounts are filed late, this is a red flag and means that the company is in some form of financial difficulty)
•   Last Annual Return Made up to
•   Next Annual Return Due (This is also very useful and will highlight if they are late filing their annual return. If annual returns are filed late, again, this is a red flag and means that the company is more than likely in some form of financial difficulty)

All the above information is free; you can however download copies of annual returns and company accounts directly from companies’ house website for a nominal fee. However, unless you are an accountant, it can be difficult to assess a company’s creditworthiness from a set of accounts.

We would suggest that you always check out new customers using companies house WebCheck service. This is better than not checking them out at all and will at least give you more of an idea as to their creditworthiness. If for example a prospect is late filing their accounts and or annual return, we would suggest that you check them out further by doing a credit check on them.

WebCheck via Companies House is a very useful service and if used wisely, it will certainly help you to reduce your exposure to bad debt.

The safest way of checking out a prospect though is to obtain a credit report on them.

  

Jamieo "Making Your Cash Flow"

 

 

Jamieo "Making Your Cash Flow"

 

Free Credit Control Resources: Companies House Webcheck Service

We are going to do a series of hints and tips on free credit control resources that are available to help you manage your credit control better. We are starting with Companies House today.

Using the Companies house webcheck service is a much under used resource that we are going to shout about from the roof tops in order to help reduce your exposure to bad debt…!.

Their webcheck service allows you to get lots of invaluable information on any UK Limited Company. You can check companies out by name or by using their company registered number. Even if you don’t know the precise name of the company, you can find them by simply typing in the first few letters of their name and tabbing through the list until you find them. Anyway, back on track….

By using the webcheck service you can find out basic information such as:

·   Date the company was incorporated (this is useful to help you assess whether or not you wish to do business with a new prospect. If it is newly incorporated, you may wish to ask for a deposit, or to put them on an automated form of payment, such as: Direct Debit or Continuous Payment Authority etc)

·   Company Type

·   Nature of Business (SIC Code)

·   Accounting Reference Date

·   Last Accounts Made up to

·   Next Accounts Due (This is very useful and will highlight if they are late filing their accounts. Normally, if accounts are filed late, this is a red flag and means that the company is in some form of financial difficulty)

·   Last Annual Return Made up to

·   Next Annual Return Due (This is also very useful and will highlight if they are late filing their annual return. If annual returns are filed late, again, this is a red flag and means that the company is more than likely in some form of financial difficulty)

All of the above information is free; you can however download copies of annual returns and company accounts directly from companies house website for a nominal fee. However, unless you are an accountant, it can be difficult to asses a companies creditworthiness from a set of accounts.

We would suggest that you always check out new customers using companies house webcheck service. This is better than not checking them out at all and will at least give you more of an idea as to their creditworthiness. If for example a prospect is late filing their accounts and or annual return, we would suggest that you check them out further by doing a credit check on them.

Free resources can be very useful, but, you do normally get what you pay for and if you pay nothing, you normally don’t get very much. Having said this, Webcheck is a useful service and without a doubt if used wisely, it will certainly help you to reduce your exposure to bad debt.

Far better though, is to credit check any new prospect before you do business with them. Credit Check existing customers at least once per year – especially if you have noticed a change in their payment habits, or, if they have started to trade with you more than usual, meaning of course that your risk of bad debt is a lot higher.

If you require further information on our credit checking service, please email us. We can give you online 24/7 access for a silly price, or, you can email us your list of debtors and we will check them all out for you and email you copies of the credit check reports, or you can use us for the odd credit check here and there – the choice is yours

  

Jamieo "Making Your Cash Flow"

Late Payment Legislation - is it Worth it?

Late Payment Legislation – is it Worth it?

As you can probably guess from the title, we are not huge fans of Late Payment Legislation, or to give it its proper name: “Late Payment of Commercial Debts Regulations 2002” Don’t get me wrong I am not completely against it and it certain cases it can and does work, but, when you look at the time involved in administering this legislation is it really worth it from a commercial perspective?

 

It sounds all great and wonderful and it makes it look as though the government is taking action against Late Payment, but, in reality are they really? Lets look at a few of the facts, through an example

 

Let’s say you had an invoice outstanding for £900 dated 31^st January 2010 on 30-day payment terms. For the purposes of this interest calculation the date today is: 23^rd May 2010

 

There is a useful interest calculator on the “Better Payment Practice Campaign” website which can be used to calculate statutory interest due in accordance with  “Late Payment of Commercial Debts Regulations 2002” or indeed for any contractual interest due in accordance with you terms of business/contract

 

Using the above interest calculator, it shows you are due £17.19 in interest. In addition to this you are also able to claim a one-off late payment compensation fee of £40.00, making a total of £57.19 to be claimed.

 

Here comes the tricky bit..! If you use Sage or another competent accounts package, there is a facility for you to calculate interest and automatically add it to accounts with an overdue balance. I am sure that you will also be able to use this function to add the late payment compensation fee too?. If not, you will either need to raise an invoice to your customer for the interest and late payment compensation fee, or journal it onto their account with you and write to them to let them know about it.

 

For the purposes of this example, let’s say you are using Sage Line 50 and choose to automatically add interest and the late payment compensation fee. Once you have added the fee, you will need to let your customer know about it, either by writing to them or sending them a statement. This is easy enough to do in Sage, but you must remember there are costs involved in taking these actions. Let’s say that you choose to write to the debtor to inform them. The cost of sending a letter will generally be circa £1.50 when you include all overheads etc

 

Ok, your customer receives your letter and completely ignores your claim for interest, but does pay you the £900.00 they owe you. This means a balance of £57.19 is left outstanding on the account. You will need to make a decision as to what actions you are going to take in respect of this small outstanding amount. Do you continue to chase this balance, thus potentially putting at risk future trading with your customer? Do you leave the balance outstanding and choose not to chase it? Questions, questions eh.

 

Whatever you decide to do, there is a big chance that you will end up having to write this balance off at some stage. This of course means more work for you – i.e. you will need to raise a journal and again this will be at a cost.

It is ok, if you only have a handful of accounts to manage, but, lets say you have 100 accounts on your ledger and 50 of them are charged late payment interest and late payment compensation, when you look at the amount of work involved in writing most of these small balances off is it really worth charging interest in the first place? Probably not?

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Jamieo "Making Your Cash Flow"

 

What Is Good Credit Control All About?

In essence, good credit control is all about making sure that everything you do within your company that impacts on getting paid is done properly and diligently; from making the initial contact with your prospect right through to sending them an invoice.

 

Let me explain: You receive a new enquiry from a prospect. They ask you for a quote. Before providing them with a quote, you should credit check them to see whether or not they are a viable company and know the “legal entity” you are dealing with. The quote you provide them with should be very detailed and include precisely what your prospect is getting for their money. It should also include your payment terms and what they must do to accept your quote.

 

An order should then be signed. Again, the order should detail the product or service you are supplying, it should refer to the quotation and once again should re-enforce your rigorous payment terms and of include all your terms of business.

 

Your prospect should also complete and return an “Account Information/Account Opening Form”, to include contact details of the buyer, the contact details for the accounts department etc. A new account should be created to include all contact details. On so many occasions an account is opened which does not contain all the basic contact information. From the credit controllers view point, this is so annoying as it means that before they can contact the customer for payment they must scratch around looking for basic information. If you are a medium or large company with 500 accounts to credit control, it is easy to see the time that could be wasted looking for information!

 

The minute you have supplied your product or service an invoice should be raised. The invoice should contain all the relevant information:

 

·   Address the invoice correctly (to include a full post code)

·   Send the invoice to the correct person – this may not necessarily be the buyer

·   Include a reference to the buyer of the goods or service

·   Quote any reference or purchase order number you have been given

 

·   Include a detailed narrative on the invoice that means something to the buyer of the goods or service (Purchase of 1 x HP56213 doesn’t mean anything, whereas; Purchase of 1 x HP LaserJet Printer in accordance with our agreement with Joe Bloggs does!)

 

·   Send invoices as soon as possible - not only is this necessary to establish the correct date for VAT purposes, but it also starts the credit-period clock ticking.

 

We haven’t spoken much about actual credit control yet have we? The point is; good credit control is not just about having a proper credit control policy in place, it is making sure that the chain of events before credit control gets involved is watertight and working correctly. So, when it comes to “actual credit control” your credit controller can contact the customer confident in the knowledge that all the “I’s” are dotted and the “T’s” crossed. Psychologically, this immediately gives your credit controller the upper hand.

 

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Jamieo"Making Your Cash Flow"

 

 

Ltd Co Debtors in Liquidation - Don't Write them off Just yet!

As per Graydon UK, company liquidations rose by 12% between April and June 2008 and there was little change to this rate in the following months.  With this figure being so high, the chances are that most businesses will be affected by at least one of their debtors going bust in the current economic climate.  If your lucky, the liquidation may result in the creditor receiving a few pennies in the pound This can be very hard to take, especially if the debtor has made countless promises of payment prior to the liquidation.   

However, help is at hand in the form of the little known Company Directors Disqualification Act 1986. This states that if the director knew, or ought to have known, that the company was continuing to trade whilst insolvent the court may (following an application by the liquidator) order them to make a personal contribution to the creditors.  Of course, some firms go bust and it is through no fault of the directors. if, however you feel that they were making promises they knew they couldn't keep then you should take action in an attempt to recover your money and to stop the dishonest director from doing it again.

In the case of Northern Rock, the lawyers and accountants found 'insufficient grounds to proceed with any legal action for negligence' against the directors who had been in charge at the time of the collapse.  However Northern Rock have already paid back 57% of the £26bn owed which is more than can be said for most company's going through liquidation.

If you are concerned about the financial stability of one of your clients due to repeated failed payment promises, get the promise in writing (email is sufficient) and from a director.  If they won't provide it, that's a huge red flag and it may be worth speaking to a debt recovery agent sooner rather than later. 

Jamieo "Making Your Cash Flow" (Article courtesy of Eleanor Bateman of Bateman's) 

Changes to VAT Rates

I am sure that you are all aware that the rate of VAT has been reduced to 15% with effect from Monday 1st December 2008.
 
This is just a quick reminder for you all to update your VAT rates in your accounting software! Failure to do this, will result in:

• Customers having a valid excuse for not paying you on time
• Extra work raising credit notes etc

I am certain that all of you have this in hand, but, it doesn't hurt to be reminded just in case!

Jamieo "Making Your Cash Flow"

Credit Crunch: How to Make Money from our Accountant!

Crest Partnership (A partner company) have recently developed a specialism by using depleted asset values caused by the Credit Crunch to generate significant tax deductions that can reduce a company's corporation tax bill.

These schemes include:-

• Sizeable claims for home working
• Asset sales
• Use of FRS accounting standards to claim tax deductions
• Increasing tax losses by changing year end dates 

They are willing to guarantee that their fees for this advice will be covered more than three times by the tax savings you will enjoy in one year alone. It will also resolve any potential section 419 exposure for excessive dividend distribution which is greater than your company's profitability.  Every one of these tax mitigation schemes have been reviewed by a panel of experts that consists of former HMRC inspectors.

If you are interested in talking with Crest about this, please e-mail me and I will put you in contact with them

Jamieo"Making Your Cash Flow"