Debt Management Procedures

Transcription

1 Debt Management Procedures Be honest and up front with your customers. Treat your customers as you would like them to treat you, if the roles were reversed. Tell everyone what your rules are - up front and often. Step 1. Develop a credit policy (Refer Example Appendix 1) Step 2. Communicate your credit policy to your customer s e.g. First meeting Letter of proposal Display credit policy on front counter Include on invoices Step 3. Step 4. Note: Ensure your staff are aware of your credit policy and also communicating it to customers. Enforce your credit policy. If you have done a good job of communicating your credit policy, the job of enforcing it is made much easier. Enforcing your Credit Policy 1. Nominate a person to handle the Debt Collection. - Ensure that this person is trained and confident to handle this position - Remember it can be a difficult job and needs time put aside without interruptions Note: It is advised to have a Debt Collection hierarchy. When the initial person has not been able to get a response from the customer the next person will make contact with the customer. In small business this may only involve the Secretary and the Owner. 2. Monthly, print out an Aged Trial balance of Debtors. This will give you a list of customers that have not abided by your credit policy. 3. Make up a Debt Collecting File e.g. Lever arch file with alphabet dividing sheets. 4. Make a cover sheet for each of the customers with outstanding debts. This will provide a record of all action/s taken to recover the payment. 5. Have a Debt Collecting Diary - Note down when money is to be received or when you are going to contact the customer next. Look at this diary daily.

2 Tips 1. Always make yourself out to be the Good Guy. - Be pleasant to your customers - Be overly helpful and friendly with all customers to start with and then progress to a more business like manner with each additional contact you have to make. - Collect all payments as soon as possible - while you are the Good Guy 2. Become hard to ignore - Make contact a week after the debt was due. (This allows payments that were mailed on time to be received) - If you ring and they are not available, leave a message for them to return your call letting them know that you will call back if you do not hear from them within a set time. - If they do not pay on the day they have nominated call - Remember the Good Guy approach - as per point Make sure you get the best arrangement - Don't ask them how much they can pay, ask them "How much are you short?" 4. Tie your customer down to a time when the money will be paid to you. Do not allow them to end the conversation with "I will look into that". 5. Do not argue back under any circumstances. If the customer starts to become argumentative simply ask for more information about the problem as the customer sees it. Terminate the call as quickly as possible e.g. "Thank you for telling me that. We really need to sort this out. Leave it to me. I'll speak to the manager and see what we can do. Can I call you back later this afternoon or would tomorrow morning be better?" 6. Make every call a productive call. If you have to leave a message always let them know that if the customer has not returned your call by a certain time that you will call back. 7. Send out a copy of the invoice with a "Reminder Stick" instead of the first letter. This may save time as letters can be time consuming. Reminder stamps and stickers are available through the local office supplies stores or you can get your own specially printed. The fluro varieties have the most impact. 8. When sending letters use a template and the merge features in Microsoft Word. It is important to follow up on collecting your debts. If the customers do not hear from you they will think that it is OK to extend their credit period. Your customers do not like losing a friend, even if it is a business friend.

3 Appendix 1: Credit Policy 1. Credit checks on customers. For example: - to complete a Credit Application - Call at least two of the referees and check on customers account conduct - Advise customer of their credit limit and credit terms. - If any doubts with client have them pay cash for first invoice then work to 30day account - For business customers wanting credit over e.g. $5000 (this amount will depend on the size and type of the business) do a credit search. Westpac Bank has a facility on their website under for example under Loans & Leasing called Credit Check Reports. 2. Trading Terms. For example: - We offer all customers a period of thirty days from the date of invoice within which to settle their account. - It is our policy to invoice customers on completion of job. A good Cash flow allows your business to function smoothly. It is important to let your customers know when their payment is due. It is better for your cash flow to work on 30 days from date of invoice or even reduce the payment period to 14 days from date of invoice. If you are accounting for the GST on an accrual basis this collection period will allow the majority of payments to be received before the BAS has to be submitted. Include trading terms on invoice. 3. Invoices - When invoices will be sent out: For example: weekly or completion of job; on the 15th & 30th of each month. (the more frequent the better for cash flow) 4. Interim Accounts/Progress payments: These accounts are sent out to customers who have jobs that will take over a long period of time to complete. An interim account letter is sent out to the customer firstly which is approved/signed by the customer and returned to be kept on record.

4 5. Person in Charge of account recoveries: Name of person When accounts will be reviewed e.g. weekly Collection Procedure Target debtor days - refer spreadsheet model (Appendix 2) Discount Reminder s/Fax/Letters 6. Discounts: Discount 2.5% of total account providing full payment is received no later 14 days from the date of invoice. N.B. This is costly and should only be used if your overall pricing structure is adjusted upwards to absorb any negative impact of the discount. 7. Monthly Statements Monthly statements will only be sent out if requested by the customer. 8. Reminder Letters (Refer examples)

5 Appendix 2: Collection Procedures (If 30 Days after end of Month) Example Timing Step No. All Invoices $ And Under All Invoices $ and Over Action to Take To Be Done By Action To Take To Be Done By Day 1 1 Invoices sent to all customers One Week after Month End 2 Print out Debtors Trial Balance 37 Days 3 /Fax/Send Letter 1 to All /Fax Letter 1 to All 47 Days 4 Send Letter 2 to All Phone. If unsuccessful send Letter Days 5 Phone. If unsuccessful, send Letter 3 Phone. If Unsuccessful, Send Letter Days 6 Stop Credit Send Letter 5 Decision Time 77 Days 7 Decision Time 1. Order Solicitors Letter of Demand/Collection 1. Accept a Payment Arrangement 2. Order Solicitors Letter of Demand 3. Stop Credit