THE FINE ART OF DEBT COLLECTING
| DOI | https://doi.org/10.1108/eb057134 |
| Date | 01 October 1980 |
| Published date | 01 October 1980 |
| Pages | 17-18 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
THE FINE ART OF
DEBT COLLECTING
BUSINESSES are in for a tough time
ahead, possibly the toughest since
1974/75.
With interest and inflation
rates still alarmingly high, and the cost
of energy and raw materials escalat-
ing, everyone in industry is short of
cash.
Such cash shortages quickly lead to
serious cash flow problems, and it is
only a short step from there to insol-
vency. Even well established com-
panies with full order books are going
under simply due to a failure to
understand the principles of cash
management. According to Dun &
Bradstreet, the business information
company, the rate of company liqui-
dations in the first half of 1980 was
higher than at any time since the war -
over 120 a week.
"Only those businesses which plan
their operations properly, particularly
in the related areas of credit and col-
lections, will survive the current
recession with its high inflation and
shrinking markets," says Don
Hadick, General Manager of Dun &
Bradstreet's Commercial Collections
Division.
One of the things to keep a sharp
eye on is the payment period for
accounts due. If customers are short
of cash in the bank they may decide to
tide themselves over at your expense.
Instead of going to the bank for a
loan, it is far cheaper for them to sit on
their outstanding accounts and steal
your credit for a few more days or
weeks to get over a difficult patch.
"Small companies with low cash
reserves are more likely to get into
difficulties than larger ones, but be
careful with bigger customers too -
they have their own professional
money managers who are well aware
of the financial advantages of holding
back on payments," continues
Hadick.
Remember, this practice seldom
pays off. Eventually those who steal
credit earn themselves a bad reputa-
tion. This can either result in them
being charged a higher price for goods
and services supplied, in order to
finance the cost of carrying the
account, or alternatively, finding
themselves unable to obtain vital sup-
plies when they need them most.
Your own reputation is also at
stake. There is a real danger in leaving
accounts outstanding for long
periods, no matter how much or how
little clout your customer has, because
you will gain a reputation for being
soft on credit - you can be sure that
some customers will take advantage
of it.
So how do you ensure fast payment
while still remaining on friendly terms
with your customers? It is a good pol-
icy to follow a standard procedure
with all invoices.
Send all invoices immediately, via
first class post. The extra speed is
worth 5p per £100 per day at current
interest rates (assuming 18%) - more
than twice the difference between
first and second class postal rates.
Send a monthly statement showing
all invoices, even if not yet due. This
will remind your customer of pay-
ments which will shortly be due, and
will also establish from an early date
that your company has an efficient
accounting system which is likely to
follow up debts promptly.
If an invoice is not paid on the due
date flag the file for action in ten days
if payment is not received. Any
statements sent in the interim should
have a notice that: "This statement
contains items which are now past
due".
NOVEMBER 1980 17
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