Once you have vetted a client and entered into a credit agreement with them, you need to monitor the way they use their credit facilities. Focus on identifying customers who have a high probability of becoming delinquent before they actually become bad-payers or non-payers.
It’s advisable to obtain a company order or purchase form from the client. Get everything in writing on a letterhead – an email or verbal confirmation of the order is not good enough. This written confirmation can be used in conjunction with your own purchase order form.
The account payer is normally not the person who ordered the service; this is where that purchase order comes in handy as there may be queries about who placed and authorised the order.
Here are a few simple steps to follow to improve monitoring and collections:
- Send the invoice with proof of service delivery, such as a signed delivery notice
- Hand deliver invoices where you can and have the client sign delivery
- If you have to post the invoice, follow up with a phone call to ensure that it was received
- Send statements at the end of the month and ensure they reflect the amount outstanding in payment terms. Your accountant can apply overdue or “please pay” stamps
- Follow up with telephone calls. Ask them to confirm when payment will be made
- Keep all proof of communication – fax transmission slips, copies of documents posted, and records of phone calls (including date, time, who you spoke to and what their response was)
- Keep your promises. If you say you will call again on Friday, do so. It shows your clients that you are on top of things and that they will not slip through the cracks
Collecting Outstanding Debt
What do you do when an account is overdue?
With some forms of debt, there are certain legal requirements that must be followed in terms of the National Credit Act (NCA) before legal action can be instituted. As the NCA is such complex legislation, these are best dealt with by a professional collector.
“It is prudent to start with a simple letter of demand to your non-paying customer and place them on terms to pay by a specified date, failing which you will hand the debtor over for debt collection,” says Bentley.
When do you hand a client over to a debt recovery specialist?
In most cases, when a commercial creditor hands over their customers for debt collection, the business relationship has broken down. “The collection process is not going to be endearing to what in all probability will be your ex-customer,” says Bentley.
“But at the same time, do not delay too long in the hope of keeping your delinquent customer. Creditors who act first are usually the ones with successful results; those who are slow are often the losers.”
Bentley advises that on a regular 30-day account, any account which is in excess of 120 days is a serious candidate to be handed over to a third party for collection.
What are the most common loopholes that companies need to know about?
If you are dealing with a customer that is a close corporation or a company, says Bentley, the business can be liquidated, leaving you without anyone to recover debt from as directors and members are not usually personally liable for the debts of the business unless you have had them sign a personal suretyship.
“Some debtors put up what is called a dilatory defence; in other words, they defend a legal action just to buy time and abuse the long legal process for defended matters,” adds Bentley. “This can be avoided by getting customers that request extension of payment terms to put such requests in writing so that later, when you sue them, they cannot say that there was an alleged fault with your product or service.”
What fee should a company expect to pay for debt recovery services?
You have to weigh up your options when choosing between an attorney and a debt collection agency. Always use a debt collector that is registered with the Council for Debt Collectors. “As much as you may feel you would like to cause physical harm to your delinquent customer, do not even think about using ‘leg breakers’,” cautions Bentley.
“Not only is it illegal and immoral, but there are also many stories about people who have been ripped off in turn by the ‘leg breakers’ and lost even more money in the process.”
Most debt collection agencies charge a commission on what is successfully recovered, while attorneys work on a tariff for work done, regardless of whether the process is successful or not.
“You must assess how far your debt collection agency can really go,” advises Bentley. “Many will promise legal action, but do they have the people qualified to do so? And if they do hand over to attorneys, is this going to cost you extra?
Also, a fixed commission could work out to be more expensive if the debt is substantial, so an attorney may be a better option when it comes to large commercial debts.”
Another word of advice from Bentley: “Make sure you find an attorney who specialises in debt collection and will report to you at least monthly, and not one for whom debt collection work is onerous.”
