Consistency the key to collecting money
Australian Financial Review – Special Report – CASH FLOW SOLUTIONS
The purpose of credit is to increase sales, but sales only count if you get paid, writes Miriam Hectman.
Collecting money from debtors does not have to be the painful experience many businesses expect it to be. Being informed about debtors from the start of the business relationship can save credit managers a lot of wasted effort.
The Australian Institute of Credit Management’s national president, Paul Phillips, makes some suggestions. “The biggest problem companies have with debtors is that their terms and conditions are not made out from the beginning,” says Phillips. “Many companies don’t have terms and conditions and they don’t establish what their trading arrangements are going to be with their customers. So the expectations from both parties are sometimes quite different.” Phillips suggests introducing a credit application that clearly details the business arrangement and the terms and conditions. “You know the full entity that you are dealing with, the company that you’re dealing with, the business that they’re in, and you have some idea of their assets and everything else,” says Phillips.
“The purpose of credit is to increase sales. And you don’t just want to go around giving it away willy-nilly if you’re not going to get it back.” Making sure that you have a correct credit application from the start will also tell you whether the customer has assets, and this will determine whether or not you need a personal guarantee. You can expect some personal guarantees if you are dealing with an entity that has few assets or an individual or a sole trader. “[It's] no good taking out a personal guarantee for someone that lives in rented accommodation and has no assets,” says Phillips. “You might as well only deal with people that, should the business that you’re trading with fall over, you’ve at least got a chance to get [some] of your money back.”
“The only legal assurance you have under our current system is to have personal guarantees against those people so that, should they not pay, then at least you can attack their assets.”
Phillips says that although sales are important, they are not everything. “The sale doesn’t count until the cash hits the till.” Phillips says that invoices are a major obstacle to getting paid. The first line of defence, he says, is for debtors to claim that the invoices are wrong. So it’s important to make sure that they’re correct.
The second line of defence, says Phillips, is: ‘I haven’t got the invoice can you send it to me again’. So make sure the replacement invoice is sent to the right person. “If it does get to the stage where you’ve got to send it again, make a telephone call after that and make sure they got it. They can’t use that excuse the next time around.”
Credit management is a specialised role, and one that Phillips believes cannot be done properly by someone ringing up when they have some spare time. Ringing people for money is not the most pleasant job either and most people have an aversion to it. Getting someone in, even once a week, on a regular basis would be enough. “Consistency is the key,” says Phillips.
When recruiting a credit manager, businesses should be looking for someone who is tenacious, fair and analytical. The role of credit manager is similar to a sales manager, says Phillips. The person must have very good skills in negotiation and communication and, because the credit manager is looking after a team, the person must also have good management skills. “[Credit managers] have the same problems that any human-resources manager would have within their team.”
Credit management as a profession has also evolved. “Gone are the days where the credit person came from the bat cave,” says Phillips. The credit manager is now a respected member of the team, playing a significant role within the business. Phillips attributes this change to a number of things, one being a ’slippage’ in morality. “Gone are the days where your word was your bond, and if I’m going to buy something from you I’ll pay you.”
Globalisation has also played a significant role. “The majority of companies are now dealing not just with the companies they know, they’re dealing with people they don’t know. They’re dealing with people on the other side of the world.”
About AICM
The Australian Institute of Credit Management is a professional body, representing the interests of industry.
It is a registered training organisation, which develops and runs courses in the credit area, including an online course run both in Australia and overseas.
The institute is governed by a board of directors elected by representative councils from around Australia.
It is managed by a chief executive and professional administration staff at the national head office in Sydney, and by an executive service in each state division.
