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 5 - Recruitment Company


Background

A recruitment business started by two brothers and had been trading several years. Over the previous 12 months they had completed a sales drive concentrating on Utility Companies and construction companies.

Situation

The drive resulted in a substantial increase in enquires from potential customers and several new contracts being won throughout the country. The company was required to recruit hundreds of additional labourers, resulting in a surge in job applications and the consequent administrative work.

Each week time sheets would come in from hundreds of labourers (faxed, emailed, posted) all to be checked, filed and payment made.

Problem

Staff were not prepared for the increase in business so any procedures that had been in place to open new accounts were bypassed. Any member of staff could open a new customer account, the usual checks were not being made and forms were not being completed.

New orders were taken by phone without a back-up email, Purchase Order number or authorisation check made.

There were no defined job descriptions for staff so work was duplicated or overlooked completely. More than once the same contract would be filled twice, double the amount of labourers arriving at sites than requested.

The HR, Purchase Ledger, Sales Ledger and Payroll teams were combined, resulting in a loss of focus. Credit control activity was not prioritised appropriately, queries were not dealt with and the overall debt grew out of control.

The company factored their debts and the bank dealt with all payments except cheques. A lack of communication with the bank led to misallocations and cash transfers to a bank suspense account that would not be reconciled.

The bank was deeply concerned with the company’s cash flow and gave it only a few months before withdrawing facilities.

Implications

Because the procedures were not being followed, there were often no contact details for conducting credit checks. Inappropriate credit limits would be set, increasing the risk of non-payment.

Payments to the labourers were often delayed due to unauthorised signatures on the timesheets, and contractors could not be invoiced due to lack of invoicing information.

The office staff were stressed and uncomfortable, resulting in high staff turnover.

Needed

Segregation of duties.

Credit control needed to understand the importance of the credit application forms, the chasing of debts and what impact debts have on the business. They needed to be shown that the performing of the checks and allocating appropriate credit limits are essential to the smooth running of accounts.

Procedures were required for the collection of the correct invoicing information in order to ensure that contractors paid their invoices in a timely manner.

Proven procedures needed to be implemented for chasing invoices and obtaining payment dates in order to provide better information to the bank.

A query procedure and weekly debtors meeting were required to resolve queries rapidly. This was further improved by giving the credit control team daily access to the bank accounts.