FACTS: The best way to ensure that debts are paid on time is to develop and consistently apply a policy of credit control. This will ensure that you customers clearly understand your terms, and make sure they are enforced.
"When Commercial Credit
Control began working with
us, our debts over 60 days
were in excess of £300 000,
by carefully implementing
procedures this was quickly
reduced to £1500."
Case Study 3 - Engineering Company
A family business trading for 30 years with a turnover of approx 10 Million.
The company dealt mainly with repeat customers who paid their invoices when they were received, so little proactive credit control was performed.
Payments dates had slipped, payments were delayed and new customers were withholding payment without reason. This was reducing the cash flow and increasing debtor days to 70+.
The bank had viewed its concerns regarding the state of the cash flow and had reduced its overdraft limit.
The overdraft had been used to assist in the purchasing of the raw materials. Without the overdraft and with reduced cash flow the company was experiencing difficulty in obtaining the goods required for production.
If production slowed staff would lose shifts and possible redundancies made. Goods would not be manufactured in time and customers not happy resulting in orders being lost.
The reputation of the company would be gone along with its good credit rating making it more difficult to obtain credit accounts.
Maintaining turnover was becoming increasingly difficult and the profit margin was under pressure.
Daily chasing was instigated to reduce the back log of aged debt and get the cash flowing.
Qualified credit control staff were recruited and a credit policy introduced implementing skeleton procedures which the staff could adapt as they gained industry experience.
A Customer query log was introduced with daily updates and reviewed weekly at Board level which followed the weekly debtors meeting involving all Departmental Managers, with a view to resolving queries in a set period.
Within four months most of the queries had been resolved; the cash flow improved, manufacturing continued at previous levels and the company regained the confidence of the bank.