If a business has proper credit control then this can limit the number of bad debts the business will have.
Our advice to clients when we take on their debt collection work is that the most important thing they can do when agreeing to do work for a new customer is to identify clearly who they are dealing with. This may seem obvious and a silly statement but can often be crucial. For example, are they dealing with an individual? Are they dealing with a partnership? Are they dealing with a company? Are they dealing with a trust?
Everybody in business naturally gets excited about securing new customers or new jobs but sensible business proprietors will have systems in place that sees no work is done or no material supplied until a formal credit application form has been completed and credit checks made.
If your business is dealing with a company then a normal credit application we would prepare would include a provision for director’s guarantees. If the directors of a company are not prepared to give directors guarantees, alarm bells should sound and you should ask the question of yourself whether or not you wish to give them credit.
For the small fee of $15.71, we can conduct a company search which will show who the directors and shareholders of the company are and whether any statutory charges are registered over the company or the company’s assets.
It never ceases to amaze us that some businesses do not use EFTPOS and similar facilities.
These types of facilities can be especially useful for irregular customers and/or customers who are only going to have a small amount of credit. We believe that merchant charges to guarantee a payment from a bank far out way the risk of giving credit to customers, some of whom will not pay.
It is unfortunate that less and less people are honest in their dealings with regard to obtaining credit. There are various forms of debt collection services provided by lawyers and provided by special debt collection services. At Macrossan & Amiet, we believe the most important aspects of a debt collection service are as follows:-
1. Local Knowledge
2. Consistency
Quite often clients will make a phone call to our offices to enquire about a certain company or individual and whether we have any other clients who are owed money by them. A few simple phone calls or credit checks can alleviate a lot of ‘heartache’ and bad debts in the future.
Consistence in the business and with your debt collection provider is also very important, the old saying “the squeaky wheel gets the most oil” is very applicable in the circumstances. If your credit manager or your debt collection provider gives a particular individual the most attention, “the most grief”, then your business is likely to be paid in front of another creditor.
It is also important for businesses to manage and recognise risk. In the building and civil construction trade, the first subcontractors or suppliers on the job site nearly always get paid but unfortunately that is not always the case for suppliers or the contractors towards the end of a job.
A long standing client of this firm Vince Franettourch, Turf Grass Mackay, favourite saying is “they are always the last ones on site and they are always the last ones to be paid”. Vince and his sons Shane and Gavin however with years of experience, both good and bad, have learnt to manage this risk for the betterment of their business.
Some years ago, probably more than twenty, when the Newlands Mine was being constructed and the township in Glenden was being established there were a lot of “out of town” contractors coming to the area and they left behind “a trail” of unpaid subcontractors.
With the present mining and construction ‘boom’ we have in Mackay and the Bowen Basin at the moment, combined with downturn in the construction industry elsewhere in Australia (with the exception of Western Australia), there is a great influx of out of town contractors, especially in the mining areas, and unfortunately we have already started to see the local subcontractors not being paid.
We have also assisted some of our clients by going out to their business’s and speaking to the relevant staff, so as to stress to these staff the major aspects and pitfalls of credit control. These onsite visits were received well and we are often by amazed the interaction and input from the different staff members.
Credit control/debt collection is something no business or person in a business wants to do and it tends to be the job that is put at the “bottom of the pile”. This then becomes another pitfall in that by the time a debt is unpaid for 120 days, there is likely to be a real problem in recovery. Whereas, if action is taken when in a 30 day time frame, there seem to be less problems in its collection.
Many business owners are put off by the cost of debt collection and the uncertainty of the result. What must be remembered is that once you obtain a judgment against an individual or a company, the judgement stands for 12 years and if that individual in that 12 year period makes an application for credit somewhere and a proper credit check is completed then they will not be able to obtain credit until the debt is paid. That may seem to some people a long wait but it’s better than not receiving payment at all.
Previous editions of this newsletter have had articles included in relation to the new Personal Property Security Legislation which is yet to come into effect but will dramatically affect certain aspects of credit control and debt collection. In particular, the following areas are affected – possible loss of ownership of hired out equipment, unpaid workmen’s lien, registration of securities. This legislation is national legislation and its commencement date continues to be put back, but as at the time of publishing this newsletter its expected commencement date is late January, 2012.
If we can be of any assistance to our client in relation to preparation of:- credit application forms, credit management systems, debt collection, advice in the personal property security legislation, please do not hesitate to contact us.
In closing remember ‘prevention’ is the best cure from bad debts.
