The question is one few finance directors have not faced at some stage. So when Richard Wyatt, director of finance for law firm Tollers, posted a query on Financial Director’s LinkedIn group seeking advice on methods to recover outstanding debts, his question prompted a flurry of replies.
“Persistence is the key,” suggests Avanquest’s financial controller Emma-Louise Young. “I generally find making a nuisance of myself works – ringing every single day. After a while everyone caves in; you just need to find that stress point. It generally doesn’t get to a judgment as we manage to get items paid before this occurs.”
And Young adds that her team monitor their customers’ credit profiles on a daily basis, revise credit limits annually, and lean on the services of a good credit controller. And if that doesn’t work, “I’m not afraid to get on the phone and call customers”, she says.
Alex Chambers, finance and IT director for Hawkins and Associates, a firm of forensic scientists who investigate industrial accidents, advises FDs to focus not on farming the chase job out, but to improve the relationship management skills of the finance function.
“The most successful form of debt collection, especially hardcore debt, is relationship development,” Chambers says. “If you can meet with the client, understand their issues and develop a proposal where they can trade themselves out of the debt and continually manage and communicate on a weekly or daily basis, this will be the most effective form of debt collection.”
Chris Joy, a chartered accountant who founded a business selling organic wines, offers a warning to FDs relying on agencies.
“Collection agencies are very good at tracing people and chasing debt,” he says. “They dislike surfacing queries on disputed debt as this is non-fee-earning work that, ultimately, they have to refer back to their client for resolution. In other words, they are very good at doing the work that any good credit control department should be doing and can’t do the work that a good credit control department has to do. By outsourcing work of this nature, you are also outsourcing the public perception of your brand.”
Joy suggests giving more of your time as FD to the issue but writing off debts that are uneconomical to chase.
“Experience tells me that old debt was once young and it is worth the FD’s time to take a look at the whole picture,” he says. “Is it uneconomical to collect? If this is the case, the FD must ask why they are doing the work and incurring all the associated costs. Alternatively, there is a good challenge for the business as to whether they have really priced in the true costs.”
Tollers’s Wyatt has the final word. “My credit controller is very good at creating relationships with the debtors and setting up installment plans,” he says. “However, some get away. I see it like a salmon net across a river: some get through, over or round and they become bigger problems further on. It is better to cut your losses sometimes and we do – but I begrudge every penny.” A sentiment shared by most.
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