Credit Management July and August 2020

COMMERCIAL COLLECTIONS
AUTHOR – Sean Feast FCICM
your customer become used to your procedures
and so relying on being able to wait for you to
send three reminders before they really have to
pay? Ensure reminders are heeded by warning
of the consequences of non-payment, including
interest, withdrawal of future credit facilities
and your partnership with a third-party
collection agency.”
EFFECTIVE POLICIES
Even with the current challenges, Michael
Rogers, Business Development Manager at
Redwood Collections, believes that collections
should not be any more challenging than
previously: “With the right approach and/
or assistance, collections need not be more
difficult, and that effective policies and
procedures will help strike the balance between
recoveries and reputational concerns,” he says.
Michael urges clients to make sure their pointof-sale
paperwork is watertight in terms of later
dispute or query: “The enthusiasm of a new
sale (and dare I say the average salesperson!)
may result in poor paperwork, compromising
credit control if the relationship sours. Things
like multiple contact details or a clear reference
to your terms and conditions can assist the
recovery process and rule out spurious disputes.
“It is also important to have a clear escalation
route. If you state a deadline in your opening
correspondence, make sure that it is followed
up in a timely manner. This will convince your
customers that you are true to your word and
will escalate the matter if necessary.”
Michael also advises businesses to categorise
their credit control ledgers: “A ‘one size fits
all’ approach will not reach all the nooks and
crannies of your ledger,” he says. “If left with a list
of stubborn and reclusive customers, consider
which of those are worthy of a potential referral
to a debt collection agency, those which are
vulnerable and require special care, and those
which may sadly be candidates for write-off.”
“In this climate you
must be open to
slightly deviating
from your standard
terms or open to
receiving a payment
plan if necessary,
you must keep
contact with your
customers high
until payments have
been made and
you must provide
clear deadlines to
your customers
and follow them
through.”
Steve Rose MCICM – Associate at Escalate Disputes
With a significant liquidity crunch being a very real prospect for businesses
across many sectors of the economy, there are steps that leadership teams
can take now to bolster their balance sheets and protect their cashflow.
Plan ahead – Keep updating your cashflow forecast as new information
becomes available and pay particularly close attention to your list of debtors.
Keep in touch – Stay in contact with your debtors to find out how they’re
getting on and to anticipate any potential problems.
Be firm – Make sure that you’re very clear in your conversations with debtors
and what you require of them.
Be fair – The reality is that many businesses are going to face pressures
on their cashflow over the coming months, so consider introducing some
flexibility when dealing with some of your most trusted clients.
And if you’re not getting anywhere… If you feel that you can’t come to an
agreement with a debtor, it may be time for expert advice.
DELAYED IMPACT
So has the true impact on collections been
felt? Alex Hilton-Baird, Managing Director of
Hilton-Baird Collection Services, thinks not: “At
the moment, it feels a little like the calm before
the storm in terms of cash collections,” he says.
“Although it has become more difficult to
recover payments since the lockdown began,
with many businesses mothballing and large
numbers of accounts payable and finance staff
being furloughed, cash collections haven’t
slowed quite as quickly as we might have
expected.
“The impact will be many times worse over
the coming months, however, as we gradually
come out of lockdown. Naturally, insolvencies
will rise – as they always do post a recession –
and, generally, businesses will also be faced with
higher debt levels to service, tax deferments
to be repaid and the cliff edge and reality of
trading post Brexit.
“Businesses should be looking to use this
time wisely to get the basics right. By this we
mean to ensure they know their customers
and importantly the nuances of their accounts
payable systems or invoicing processes. They
should also have robust terms and conditions
in place, invoice accurately and on time, put
in pre-due date calls to verify payments will be
on time and seek specialist support where no
progress is being made.
“What’s perhaps most important of all is to
maintain a human touch when engaging with
customers. We need to recognise that people and
businesses are genuinely struggling out there,
and many will have little choice but to delay
payment. In these instances, we have found
it very useful to have a working knowledge of
the support available, and where appropriate
to signpost debtors and challenge what we are
being told.”
Alex believes that whatever happens, third
party collections agencies will play a valuable
role in supporting businesses in the months
ahead: “As well as providing additional resource
when credit teams are stretched and adding
extra weight to collections efforts when a
customer isn’t paying, they’ll also be required
to act as a mediator, obtaining payment whilst
being sympathetic to the customer’s situation,”
he says.
“I believe going forward we will see shorter
credit terms being extended between SMEs
trading with each other, more business being
conducted on pro-forma terms and personal
guarantees used more to underpin credit. There
will also need to be a reimaging of credit scoring,
including more regular updating of algorithms
to include live payment practices and granular
Open Banking data.
“For now, though, focus on recovering aged
balances quickly, seeking support where
necessary, and ensuring appropriate credit risk
policies are in place going forward,” says Alex.
Advancing the credit profession / www.cicm.com / July & August 2020 / PAGE 20