Paul Carrote on remaining solvent in troubled times

Ensure the customer has agreed to your terms and conditions before you start work

Every month millions of pounds are lost as firms go out of business owing their suppliers money. The question is how can a company or a sole trader protect themselves from bad debts? If you Google that question a series of identical lists published by debt collection firms, accountants and lawyers will come up. Read collectively they are common sense – ideas that everyone should put into practice. The strange thing is some firms go bust all of a sudden with little or no warning catching everyone out so nobody is immune from being hit by a bad debt.

Checking a firm’s credit rating can be very misleading as an accounts department under pressure will want to maintain a good credit score to attract new customers so will pay the largest invoices from the largest companies first along with those who shout the loudest. From personal experience I once asked for a credit reference from a bank on a new client. It was sound – but the firm went bust the following month.

Paul Carrott is the Head of Collections at ICSM and said another pitfall for creditors commencing a new customer is failing to find out the real owner of the business and its correct name.

He said: “We had a case recently where the creditor thought they were dealing with one particular company but found the name was only a trading name. When the firm closed and disappeared it took a lot of detective work to eventually trace the real owner.

“When you initially begin trading and get a new customer to complete a form with all their details on you need to check the name. If it’s a trading name you may find chasing payment to be a wild goose chase.”

There are certain businesses that are more susceptible to bad debts due to the historic way they conduct business or the nature of the work. The print industry has had a tradition of ‘my word is my bond’ while construction and haulage often feature numerous sun-contractors, casual workforces and payment in cash. Service industries are not immune with marketing and design often working on the basis of a handshake to do business. All are in danger of being left high and dry with the client runs out of cash.

Paul Carrott has a few basic tips for all accounts departments or the self-employed who will often do their own paperwork. He said: “There are some basic housekeeping procedures every printing firm, self-employed person or supplier in general can and should take.

“Firstly, take invoicing and payment seriously. Don’t invoice late, always chase up late payment and ensure the customer has agreed to your terms and conditions before you start work.

“If your terms are payment on 30 days then every day after that is late and should be treated as such.”

“All too often suppliers are being too lenient when their clients go beyond terms, continuing to accept further orders adding to an already overdue account or providing credit terms that way exceed the recommended limits set by credit reporting companies.”

Paul Carrotte gives these useful tips for print firms in their internal accounting procedures.

  1. All customers to agree to your date terms and conditions and ensure they are signed with the correct name of the client. Whenever possible, keep a record of your client’s bank details. It is not uncommon to request them in a credit application form.
  2. Have a strict procedure on invoicing, with invoices sent out on time as soon as a job is completed and ensure that if a purchase order number is required, you have it!
  3. Send a reminder by email before the payment due date after 14 days if terms are 30 days, and 7 days if terms are 14 days.
  4. If payment fails to turn up on the due date, phone the client and make sure you get a verbal answer from them or their accounts department stating when they will pay. Email them afterwards to remind them with what they said.
  5. Send a monthly statement by email listing everything owed.
  6. Insist on payment by BACs and not by cheque.
  7. Keep the channels open between the accounts department and that of your customer by polite and friendly telephone calls and emails.
  8. Charge interest as according to your terms and conditions on overdue amounts.
  9. Stick to your procedures and be firm at all times with the client over payment terms. It is your money after all.
  10. Keep all written/email correspondence and paperwork in case of legal action and never threaten legal action if you do not intend to pursue it.

“One conflict that can arise is that between the accounts and sales departments,” said Paul Carrotte. “A large order may have just been received by the sales team from a client while the accounts department is about to put the customer on stop. A system needs to be in place on whether the order can be processed or not, usually with the financial director or equivalent making the final decision.”

He said there are steps to be taken before calling in a debt collector which can work. He added: “The simplest one is to offer a payment plan. A customer may genuinely not have the money to pay you, possibly because they’ve taken a bad debt or have cash flow problems. If you wish to keep them as a customer then helping them through a bad patch may help your relationship in the future but remain firm and do not become a pushover.”

“Insist all new orders are paid up front but allow them to pay the outstanding amount over a period of time in small instalments. It may not be ideal but at least you will get paid and in a recession it’s not an uncommon practice.”

A final notice letter is another weapon in your armoury. He added: “There are many templates to choose from but it’s best for the first one to be on your own letterhead and delivered by post or hand with a copy kept and if posted – proof of postage or by email with read and delivery receipts obtained. It should restate what is owed and that it must be paid immediately or by a set date.”

“If convenient then a personal visit can also work, your customer may be embarrassed by contact with your firm but if you can catch them and speak one to one, face to face, it can break the ice and give you the opportunity to gauge their true intentions. They may offer to sort payment out immediately to save embarrassment.

“If these routes fail, then it is definitely time to call us in. We have one of the highest percentage success rates of any collection firm out there at collecting not only your original debt in full but also the costs you incur in the collection process and additional penalties. So more often than not, it actually pays you to use our debt collection service.

“The biggest cause of unsuccessful collections is where a supplier has left it too long before making the leap and passing a debt out for collection. Most commonly because they don’t want to upset the customer or are concerned at the cost of doing so. Leaving it too late can mean that other people have already started their own legal action leaving you at the back of the queue or your client has become insolvent leaving you high and dry altogether.

“Look after your money, don’t be afraid to put the pressure on your customer. You have put in the hard work providing the goods and services that the customer required in a timely manner and you deserve to be paid for it!”

He said there were tell-tale signs that a client isn’t going to pay and it is time to call in a debt collection agency like ICSM credit. The classic one is the ‘cheque is in the post’ which is a promise to pay that doesn’t materialise. Another is when after much chasing the client queries the invoice despite having had it for weeks while if a customer fails to answer your call, email, text message or even a personal visit – it’s time to call in professional help.

Nearly all debtors have the ‘ostrich mentality’ said Paul as they bury their head in the sand hoping that the problem will eventually pass.

At that point ICSM Credit will send out a legal letter to the debtor which in around 87% of the time brings in the cash. Some seasoned late payers won’t pay up without further action which is where a debt collector like ICSM Credit should be employed.

“We have had examples of debtors moving address, saying it wasn’t them who ordered the work, or even denying any responsibility at all despite the evidence against them,” he said. “We have heard every excuse you can think of which is why you must keep comprehensive records of the steps you have taken in case it goes to court.”

If a visit from the debt collector fails, then it is time to ramp things up even more and take the claim to court to obtain judgement.

“We do this regularly for customers,” said Paul. “The law in Scotland and Ireland is slightly different from England and Wales but essentially if you follow the court’s procedure you will get a judgement in your favour.”

“Once judgment is obtained then the fun really starts. Some people don’t realise the power of a county court judgment. It isn’t just a black mark against a company’s credit rating it really does open up the doors to what you can do to get your money back. Enforcement of a judgment is incredibly effective and there are a number of options available.”

As well as county court action ICSM regularly issues statutory demands against debtors. Not only limited companies but also against sole traders and even individual people. This is one of the hardest hitting methods providing you intend to see it through. Yes, it can be one of the more costly methods due to the court fees and sometimes solicitor fees that have to be paid up front but it harbours very serious consequences for the recipient if they still fail to see to the debt in question. A Statutory Demand is the 21 day notice issued prior to us forcibly winding up a Limited company or bankrupting a sole trader or individual. The client that requests this course of action gets first refusal of any cash or assets held by the company or individual. Your costs for taking this action are added to the debt and repaid from whatever can be taken from the company.

After a County Court Judgement is granted the customer has the option to enforce their judgment. There are many different options of enforcement but the three most commonly used routes are:

To instruct a county court bailiff – however we do not tend to use these a great deal as they are used to enforce low value debts under £600. County Court bailiffs are selected by the courts.

To instruct High Court Sheriffs / High Court Enforcement Officers – These guys are great at what they do. Sheriffs act on debts over £600 but have no upper limits to what they can enforce. They have incredible enforcement powers (I don’t want to give too much away as to what they can do) and successfully enforce nearly every debt we recruit their services for. There are many High Court Enforcement firms out there to choose from and knowing who to choose is difficult. But costs to the creditor are fixed so if you are ever quoted more than a fixed fee of £66 to enforce a debt using a High Court Enforcement firm then they are not what they say they are. We tested the waters a few years back with a very well recognised firm who definitely talked the talk but despite their apparent reputation fell very flat when it came to walking the walk! We very quickly left them behind and are now lucky enough to work very closely with a firm that I can confidently say are one of if not the best out there. So from my own experience of dealing with these firms I think the ones that oversell themselves and feel the need to create a dramatic appearance of themselves should be avoided whilst those that promise to deliver without the need to create a scene tend to be the ones to go for. A reputation is earned it is not created and results speak for themselves.

The other enforcement route ICSM commonly put to use is the Third-Party debt order some still refer to it as a garnishee order. As long as you can provide the bank details of the company that owes you money or are lucky enough to know of someone who owes them money and can obtain their bank details we can issue this order and covertly freeze their bank account and seize all cleared funds from it up to the value of your judgment. The bonus is that the only time your debtor becomes aware that this is taking place is after the account has been frozen. Only the courts can authorise for the account to be unfrozen.

For details about ICSM Credit call 0844 854 1850 or visit the website or email on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn

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