case studies on credit control

Credit Control Management Case Studies on Credit Control This article by Augustus Hall Limited does a good job of explaining the relevant issues important to you as a Credit Control Manager or Chief Financial Officer. Augustus Hall Limited (RC. 912580) www.augustushall.com

http://www.augustushall.com/

Credit Control Management

www.augustushall.com

Augustus Hall Limited (RC. 912580) | www.augustushall.com

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Table of Contents

Credit Control Reporting Project ...................................................................................................................................................... 4

Supporting Customers in the Recession ........................................................................................................................................... 6

Credit Control as a Financing Tool (Market – Manufacturing) .......................................................................................................... 8

Reduce Your Overdue Sales Ledger, and Bad Debt ........................................................................................................................... 9

Case Study - Contractor vs. Property Developer ............................................................................................................................. 17

The Business Challenge – Debt Collection/Recovery and Mediation.............................................................................................. 17

Case Study - Construction Industry ................................................................................................................................................. 18

The Business Challenge - Consulting ............................................................................................................................................... 18

Case Study – IT Industry .................................................................................................................................................................. 19

The Business Challenge – Training .................................................................................................................................................. 19

Definition of mediation ................................................................................................................................................................... 20

Case Study - Wholesale Animal Feed Industry ................................................................................................................................ 22

The Business Challenge - Debt Collection ....................................................................................................................................... 22

Case Study - Energy Industry .......................................................................................................................................................... 23

The Business Challenge - UK Debt Collection.................................................................................................................................. 23

Case Study - Book Industry ............................................................................................................................................................. 24

The Business Challenge – International Debt Collection ................................................................................................................ 24

Case Study – Largest Book and DVD Company in the UK................................................................................................................ 25

The Business Challenge - International Debt Collection ................................................................................................................. 25

Should you be afraid of chasing a big national company for payment? ......................................................................................... 27

Background ..................................................................................................................................................................................... 27

Conclusion ...................................................................................................................................................................................... 31




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List of Case Studies on Credit Control

Scenario 1

Case Study: Credit Control Reporting Project

The Challenge:

This credit control department had little or no visibility of the age of debts owed by clients and the outstanding balances or credits made to clients. A debtor report for executive management takes up to two weeks to compile from various data sources and formats and all credit transactions have to be recorded and summarized manually.

When we engaged with the client, much of the credit control manager’s time was dedicated to manually collating data from various sources. Up to 2 days a week could be spent on this task.

The client needed a way to provide key internal management direct visibility into debtor and credit information for all clients across up to 50 branches for any user defined period. Debts were to be viewed on a 30, 60, 90 day breakdown basis.

Augustus Hall Limited was selected to design, develop and advice on that which would allow the creation of easy-to-use, understandable reports that would integrate data from several cross-platform databases and could be exported to a format suitable for manipulation while allowing all key staff to instantly access the credit control reports/information in the format they needed.

In business if the service or product supplied and appropriately

contracted for meets the contracted criteria there are no reasons

why payment should not be made as per contract. This is

regardless of the client’s inability to pay, perceived or real.

‘David and Goliaths’ do not exist in these scenario and the

damage to reputation is usually harder on the bigger company’s

side.

What is evident though is that debt recovery, when handled

appropriately and by an experienced and knowledgeable third

party has a major part to play in a good conclusion and healthy

onward relationship.




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The Solution:

In addition to the above, we introduced three reports – a debtor day summary, an unallocated cash report and a credit note summary were to be created for each of 8 key credit control ledgers. Starting with an initial set of prototypes to be tested by key personnel, Augustus Hall Limited was able to design and deploy the reports in 2 weeks.

The Results:

Immediately information for which there was no visibility was accessible at executive management level. Many of the staff tasks in the credit control department could be re-evaluated.




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Scenario 2

Case Study - Supporting Customers in the Recession

The Challenge:

One of our clients sent 2 big orders on credit terms (due to long existing business relations) from China to a Nigerian agricultural chemical merchant for 2012 and 2013, which took the credit limit with the customer to the limit. Now, this customer was supplying to farmers, and we know how they’ve been hurt in the recession and coupled with the poor weather and planting season experienced in a long while and further worsened by the terrorist actions in and around the North Eastern Nigeria, also with the Fulani clashes with the farmers around the middle belt regions of Nigeria, so all these crystallized into poor business and bad credit sales to local farmers…no surprises then when the Nigerian merchant couldn’t get paid by those farmers whom are the end users (and obviously these local farmers got supplied also on credit terms by the merchant) in January 2014.

To worsen the whole issue, the 2013 consignment wasn’t cleared on time due to cash constraints and bad business as witnessed by the Nigerian merchant, these was all a big challenge with clearing at the port delayed for almost 10months resulting to a very unimaginable demurrage. Alternatively, due to the high risk burden facing the Nigerian merchant, he automatically choose to quit his business and officially admit to bankruptcy coupled with the insurmountable law suits from the Chinese exporter sueing for the unserviced debt now lying unpaid for 2years now totaling into millions.

With all these pressure on the merchant we at Augustus Hall Limited frankly felt our client was left with two critical options at that point:

1) If the Chinese firm still insists on terms from the Nigerian merchant, then this means this Nigerian merchant/customer goes out of business;

2) Secondly we felt that the Chinese firm goes for an alternative.

The Solution:

As we suggested, my client agreed for an ALTERNATIVE – i.e. a payment plan for the customer, however, at this point no supplies where made till date to Nigeria; hence we immediately went into helping the Nigerian merchant design a new business development and marketing initiatives to ensure we comes back to business and at the same time enable him stabilize his cashflow and also we had to advice him to also adopt discounting for the products and this actually yielded large sales turn over and from that point things started working out well, and a large chunk was made to offset the older invoices each time… and each months down the line, the plan continues to work, the balance on the older invoices continues to reduce, and the customer continues to trade.




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The Results:

So what has the client got from it? Months of trade – and so profit – they would not have had otherwise and…invaluable customer service and loyalty…what would that be worth in today’s business climate?




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Scenario 3

Case Study - Credit Control as a Financing Tool (Market – Manufacturing)

The Challenge:

A client in the manufacturing sector secured “a major extension on a supply contract”, which would increase turnover by more than 32% in a year. Normally this sort of growth would need to be funded by using external finance (loans, overdraft, etc) which would have cost thousands of Naira.

The Solution:

Through careful cashflow management, and ensuring that their Days Sales Outstanding – DSO was reduced from “120days to just 22days” and coupled with “consistently focused credit control strategy” the client was able to pay for the entire process…additional stock, packaging, labour etc…without ANY external financing… which saved them thousands of Naira in overdraft/finance costs, so increasing profitability.

The Results:

Whether you save millions of Naira, or even thousands, being able to fund growth internally improves your profitability…




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Scenario 4

Case Study - Reduce Your Overdue Sales Ledger, and Bad Debt

The Challenge:

In the time we were involved with this bigger client, we reduced “ALL” their 2year overdue accounts from over N6m… to N0.4m (which was being repaid on a payment plan); hence, the total overdue value dropped from N12.4M… to N0.4m (of which N370,000 was promised).

The Solution:

Bad debt was in the region of N12m through a two year period, while their total turnover was approx N10m-N13m for the same period…

The Results:

What does all this mean? A much healthier balance in the business bank account…and a better profit margin, because the cost of credit (i.e. cost of carrying outstanding receivables) is reduced…




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Scenario 5

Case Study - Supplier of Skilled Labour to the Oil and Gas Industry (Market – Global)

The Challenge:

Our client had considerably “ESCALATING” outstanding debt tied up in lots of disputed invoices. A diagnostic report was carried out by Augustus Hall Limited to cover their whole “order to cash” process and measurements were taken. Our client used invoice discounting to fund their business, a condition of which has “no credit insurance”.

The Solution:

The solution was to compile an in-depth credit policy that complied fully, and was rolled out to all areas of the business to gain 'buy in' with the sales force and other departments. A dispute resolution management system was set up along with meaningful credit management reporting. Credit department KPI's were set. In line with the above, we also assisted our client with the recruitment of skilled and motivated credit control staff to ensure effective cash collection.

The Results:

Within 8 weeks, our client was able to collect millions of Naira that had previously been disputed. Our client gained an “IMPRESSIVELY” improved working capital due to a robust credit policy being implemented as deployed by Augustus Hall Limited resulting in reduced interest rates (on each delayed disputed invoice) with their financiers.




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Scenario 6

Case Study - Recruitment Consultancy (Market - Accountancy, Sales & Admin)

The Challenge:

Our client is a new start up company and wanted to protect themselves from “bad debt and know how” to go about collecting any outstanding invoices effectively.

The Solution:

The solution was to provide advice on terms and conditions of sale, look at credit management as a whole and also credit risk assessments, provide appropriate credit control system tools and enabling technology, provide template collection letters and advice on how to incorporate terms and conditions of sale, be proactive in collecting any outstanding payments whilst complying with current professional ethics and practices and improving their client relationship.

The Results:

Our client now has a bespoke framework to work within for credit control issues that is directly relevant to their business and their market place. Our client also has peace of mind.




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Scenario 7

Case Study on a Training Provider

The Challenge:

Our client “a major Corporate Training Provider” had considerable outstanding debts owed it by its clients for Training Services rendered (mostly upfront as most of its top clients pay after a cycle of 60days as a policy). However, this major 60day cycle was now having serious impact of the Training Company’s existence and operation and needed to stem/stop the rising tide.

The Solution:

The solution was to offer a third party debt recovery service; we effectively collected all “undisputed debts” on behalf of our client. We provided regular updates regarding progress of outstanding debts and any action to be taken as part of our service. We negotiated with debtors on our clients behalf to resolve disputes and gain payment. To date, we have successfully recovered 60% of debts passed to Augustus Hall Limited for collection. This results in collection of more funds for our client that they had been unable to collect themselves.

The Results:

Our client now has greatly improved cash flow.




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Scenario 8

Case Study on a Mechanical and Electrical Contractor

The Challenge:

Our client had problems getting outstanding retentions paid from main contractors.

The Solution:

We used our considerable experience in the construction industry to negotiate payments with their client's quantity surveyors.

The Results:

We collected over 70% in millions in unpaid retentions for our client.




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Scenario 9

Case Study as Credit Control Systems Contractor (Market – Construction)

The Challenge:

The directors of this small but rapidly growing company in the Construction industry found they spent too much time chasing outstanding payment which greatly impacted on their ability to carry out their normal day to day work. Our client didn't want to involve a third party such as a “factoring company”. And as such, this client w as much more concerned about handing their debtor-client’s to a third party who where NOT only interested in “collected payment of invoices”, BUT improving their customer relationship with the debtors as well.

The Solution:

The solution was to offer our client an outsourced, customer focused, credit control service where Augustus Hall Limited acted as an “undisclosed third party”.

The Results:

Our client now enjoys improved cash flow; we have helped them to reduce their overdraft facility by 50%. Our client also has more time to carry out their day to day work, and has effectively delegated the cash collection side, (the part they did not enjoy) to Augustus Hall Limited, a commercial credit management specialist.




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Scenario 10

Case Study on a Structural Engineering Firm

The Challenge:

Our client wanted to improve their collections staff's efficiency. More so, this company wants the entire credit collections department to be professionally guided in terms of each staffs’ required task and deliverables, each staff required job role and responsibility, authourity control, appropriate delegations and a well structured operations in a 360 degree approach for best effectiveness. After discussions with the client an in house training course was agreed upon.

The Solution:

A training needs analysis (TNA) was conducted by Augustus Hall Limited and a well tailored and required training course delivered that was specifically relevant to our clients business.

The Results:

Our client's collection staffs are now more efficient and motivated. Our client till date has received an excellent return on investment as a result of this.




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Scenario 11

Case Study on a Solicitor Firm

The Challenge:

Our client, a local, medium sized practice with offices in the Lagos, Port Harcourt and Warri area, needed to improve collection performance to gain additional working capital to allow for much needed expansion.

The Solution:

The solution was an in house training course for the whole credit control team. This course was designed to be specifically relevant to solicitors, the training course helped the team to effectively negotiate with their clients, to show empathy together with firmness; adopting an non adverse posture (of which Lawyers a know for) to debt recovery.

The Results:

Our client now has improved collection performance in a customer focused way, thereby maximising working capital.




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Scenario 12

Case Study – a Contractor vs. Property Developer

The Business Challenge – Debt Collection/Recovery and Mediation

We were contacted by a contractor that managed and supervised the construction of groundworks and concrete frames; the project’s value was in N250m really large and lasted for 12 weeks.

A dispute occurred and ran for nearly 16 months. The property developer disputed the costs that the contractor had accrued.

The dispute went to litigation and the solicitor and barrister fees grew at an alarming rate.

Following a series of Court hearings and appeals the case dragged on and costs accrued.

Relationships became strained as the position became entrenched.

The Solution:

Finally the two parties obtained an order to stay the legal proceedings and mediation took place. The parties agreed to a settlement.

How much did litigation cost? Property developer’s fees in excess of N6,000,000; contractors fees in excess of N4,000,000, now the question is ...what did mediation cost?

The Result

N400,500 - How much better would it have been to have gone to mediation in the first place?




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Scenario 13

Case Study on a Construction Industry

The Business Challenge - Consulting

A construction company with a turnover of over N1.2b was having serious cash flow issues due to problems within their credit control department.

Augustus Hall Limited was contacted and after an initial meeting we found that 32% of their customer base was paying between 250 days - 270 days.

The second challenge was then to evaluate the system processes, policies and procedures to effect change.

The Solution

The first priority was cash flow, did the company have enough cash to sustain the business whilst action was being taken with the credit control department, it was found to be tight but sustainable, and if necessary we would have brought in specialist financial support.

Getting on the phones was the priority; get as much cash to bank a feasibly possible without alienating their customers but being proactive in drawing out the slow payers and being effective in the chasing cycle.

The Results

Jointly we made a significant impact on their collections over the coming weeks, which effectively started to impact on the high use of the overdraft facility by reducing its use and effectively bringing in a cost saving within a very short time.

Once we had started to manage the collection cycle, we looked at the whole receivables conversion period as this was a very important step to accelerate cash flow.

We are still working for the client and have regular monthly meetings to keep everything on track.




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Scenario 14

Case Study on an IT Industry

The Business Challenge – Training

As Credit Management specialists we understand the importance of effective training. It will boost morale, increase productivity and cash flow.

We were contacted by a small IT company supplying SME’s with IT support and guidance. The training was in-house so as not to impact too highly on the everyday running of the business. Confidence and guidance were the biggest issues and it was having an impact on moral and the collection process.

Solution

We spent the day discussing the principles of Credit Management, effective relationships, sales team intervention, policies and procedures, telephone techniques as per the modules on our training page.

Result

“Thanks again for a very successful day – nothing but positive feedback from the Credit Control staff” said the IT Manager




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Scenario 15

Case Study - Definition of mediation

The act or process of mediating; especially with intervention between conflicting parties to promote reconciliation, settlement, or compromise

Mediation is a powerful, cost effective dispute resolution tool, which has become far more common because it reduces conflict and spiralling legal costs, not forgetting the stress, strain and anger parties may feel towards each other.

Although mediation is used in many fields, as a business we felt it was necessary to consider where mediation could be most effective, so we decided to look at the construction industry, just as an example for the basis of this particular case study.

It is not uncommon for defects to be found in construction after the work has been completed, even after snagging has taken place.

Normally disputes are highlighted when payments are requested and such disputes can be very expensive to resolve; not only will solicitors and barristers be needed, so will expert witnesses, one for each party. Although, of course, it is the duty of each expert to assist the Court, a party will not instruct an expert unless that expert broadly supports that party's contentions in the dispute. That, of itself, leads to increased costs in resolving the dispute.

A typical High Court action, therefore, might involve a building owner, a contractor, a sub-contractor and an architect, a total of four parties. Each party will have a solicitor (in a big case, a team of solicitors), a barrister (or two, including a Senior Advocate/Counsel if the issues are difficult or if there is a great deal of money at stake), and an expert (or two or three if there are different expert issues, such as architect's liability for negligence, quantum of repair costs and quantum of a reduction in value claim). Suddenly, each party has between a minimum of 3 and 7 or more professional people working for him.

Each party’s costs are then growing fast, increasing the commercial risk to each party as time goes by. Even under the “Woolf Rules”, the starting point for awarding costs is that the “winner” has his costs paid by the “loser”. It is not uncommon for the total costs of multi-party construction litigation to exceed the sum in dispute. In this example, even in a relatively simple defects dispute could create costs for each party of a minimum of N12m. That is N48m for the total costs of all four parties before the judge decides the question of liability. In most cases about defects, the costs will be much greater than that. That N48m is the potential legal cost risk to the “loser”.




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What does mediation bring to that kind of dispute? First of all, it enables all of the parties to look at their own position and that of the other parties in a structured way, assisted by the neutral mediator. Positions do change in mediation as a result of that process.

Secondly, each party is able to bring into play its interests, as well as its legal rights. This is a vitally important difference between mediation and other methods of dispute resolution: courts can have regard only to legal rights and declare them; it cannot deal with the parties’ other interests.

In this case study, a building owner believed he had a very good case in law against the contractor and his Architect. The contractor had joined one of his sub-contractors into the litigation, seeking an indemnity (security) from him. Finally, there were proceedings for contribution between all the defending parties.

The building owner was unaware that by winning his case in court, the contractor would be insolvent and the insurers of the architect might reject liability on the professional indemnity policy, leaving an uninsured architect, with no substantial assets, unable to pay the judgment sum. If the case had not been mediated, the building owner would have probably won his case but received no money for repairs and no payment towards his legal costs.

In the event, in mediation, a settlement was achieved in one day that enabled the building owner to get the repairs to his building done for less than the costs he would have spent on the court action continuing, albeit the building owner agreed a less expensive repair scheme than he was contending for in the litigation; the builder contributed money to the repairs to an extent that he could afford, short of insolvency; the sub-contractor contributed to the repair cost as well; the insurer of the architect contributed a small sum, representing a payment to remove the further risk of continuing litigation cost. The saving in legal cost overall was several millions of Naira.

The interests of the parties were secured: the building owner got his repairs done (on a cheaper, but satisfactory, scheme) at no cost to him; the contractor avoided insolvency; the sub-contractor and the Architect and his insurer stopped spending further money on litigation costs. Such a result would not have been possible as the outcome of court proceedings.




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Scenario 16

Case Study on a Wholesale Animal Feed Industry

The Business Challenge - Debt Collection

Augustus Hall Limited was contacted by the MD of this company as he was passed our details through a business associate of ours.

We discussed the situation in detail and the reasons why this situation has now come to head. Like the majority of companies, when dealing with clients you try and discuss the situation and sometimes the dialog breaks down. Unfortunately most businesses leave this process far too long and this make the job of collecting far harder.

Solution

We started a dialog with the company that owed the debt, and after long discussions we came up with a payment plan that suited both my clients’ wishes and supported the debtor.

Results

This can be a time consuming process, but it does have its benefits. We managed to clear the debt for this client in question, our client stated that he did not think it likely that we would succeed as they had been having trouble with this customer for well over 2years, so was very pleased with the outcome.




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Scenario 17

Case Study - Energy Industry

The Business Challenge - International Debt Collection

A large European IT Services broker specialising in the Gas and Electric industry via their Lawyers contacted Augustus Hall Limited. Their customer, who is a leading supplier to the Oil and Gas industry here in Nigeria, owed debts that where over three years old, despite a contractual agreement being signed.

Augustus Hall Limited were approached for assistance in this matter as third party debt collection agent. Contracts were passed and all the documents were read and discussed with the client.

Solution

After further examination and in collaboration with the client, we contacted their customer and started the negotiation process to ascertain why the invoices were still outstanding over this long period. We requested a reason for the delay and non payment of the invoices. Augustus Hall Limited then wrote to our client’s customer highlighting clauses that were agreed at the time and signed off.

Result

After several conversations with the customer and a detailed explanation of contract law and the signed terms and conditions, Augustus Hall Limited was in a position to request immediate payment.

Within seven months payment was activated and hence the debt was being serviced on a monthly agreed plan.




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Scenario 18

Case Study on a Book Industry

The Business Challenge – International Debt Collection

Our client based in United Kingdom who is into publication of books requested our assistance (via their allies) in a debt of approximately in a very large amount which had been outstanding for the past 5 months and as such could not establish contact with the customer in Nigeria.

Solution

Augustus Hall Limited managed to investigate the issue and was informed that contact needed to be made with the debtor company in Lagos.

After extensive investigations, Augustus Hall Limited contacted the debtor and discussed what had occurred and was informed that the debtor company had a cashflow issue; the debtor admitted that contact was avoided so they could try and resolve the situation.

Result

We discussed our findings with the UK based book publication firm via their allies and put in place a payment plan over a nine month period.

The debt has now been paid in full.




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Scenario 19

Case Study on a Book Publisher Company

The Business Challenge - International Debt Collection

Our clients also a major Book publisher and exporter had a customer in Lagos, with an outstanding balance going back seven months where no contact was made. As their Collection Agency, we received all the transaction details and started the investigation.

Solution

We knew that part of the problem was skipping (i.e. skip tracing or also known as run-away debtor) the contact as it appears that the acclaimed Lagos based importer had refused to respond to emails and telephone calls.

Augustus Hall Limited had also had to deal with a sudden change of business location and new business name with very conflicting identification of those behind the Lagos based company (i.e. acclaimed debtor).

Some information could be passed by email but due to the language barrier it was essential that we discussed the nature of the disputes by telephone as well.

After extensive investigations we established contact and found that the Lagos based company had suddenly relocated from Lagos to Abuja, with a new business name, but this time, we had challenges pin-pointing the real physical place of business in Abuja.

It was also investigated that this fraudster debtor had since had good relations with the UK based book publishing company, but all with a well calculated plan of absconding with merchandise after more than eight repeat businesses involving the two parties exchanging goods for credit after which the Nigeria party was to return sales proceeds expected from his anticipated sales.

More so the Nigerian party initially was intentionally disputing the statement of account which they received before moving; hence with this time wasting he had enough time to evacuate his merchandise to now an unknown business location yet to be UNRAVELED

Results

We contacted the UK based book publishing firm once we had all the facts and the issues relating to the outstanding balances, the contact details which they had about the debtor was far too outdated/obsolete or were out of date and the company had moved premises.




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Till date this file is still UNRESOLVED and currently CLOSED; hence the disputes and payments were never made.

Augustus Hall Limited recommended that the UK based book publishing firm going forward carry on an EXTENDED DUE DILIGENCE in doing business and request that all their current customers update their credit application form with additional details so issues like this would not happen again. Augustus Hall Limited is still working with the company in in line with this.




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Scenario 20

Should you be afraid of chasing a big national company for payment?

Background

A small two man web design business had been trading for approximately two years and had

earned a good reputation for their work although they were struggling financially. Based on their

reputation, they had an enquiry from a national company which was well received. They were

approached to do some adjustments on a design project as an initial opportunity.

A quotation was submitted and accepted and the appropriate Terms and Conditions signed and

agreed.

The project advanced well and the client’s satisfaction was evident throughout all email and other

communications.

When the final invoice was submitted the client refused to pay, saying they were unhappy with the

work produced.

Current situation

Given their financial situation the web company needed payment to survive since the efforts on this

client had taken all their focus.

Added to this were the natural concerns on the damage to their reputation on the marketplace and

the expected fallout. Would their national client damage their reputation and to what level?

A large debt sat unpaid on the ledger and they didn’t know how to approach their client or chase for

payment. The client’s Legal department is formidable and the costs of litigation too onerous.

At this point Augustus Hall Limited took on the debt, contacted the debtor to find out why the

invoice had not been paid and discussed various ways of moving forward.

The invoice was paid within 4 months of getting involved. Given the background the client, was

satisfied on results and timescale achieved and agreed that they should chase large national

companies for payment. The really important achievement, however, was that the introduction of a

third party collection firm like Augustus Hall Limited allowed the relationship to continue without

much loss of face or values.




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Scenario 21

Case Study - Competitiveness and Bad Debt Losses

One of our clients recently asked us to look into and also comment on the fact that their company had “almost no bad debt losses” over the last two years. Management expressed concern about the possibility that their credit policies might be too conservative. I responded that this is a complex issue.

Specifically, a company’s credit policy is influenced by any number of factors including:

The company’s strategic goals

Its market share goals

Its profit margin

The impact of any new product launches

The company’s overall competitive positions and its current market share

Its’ bad debt reserves

The goals established for the credit department

The policies written for the credit department

Management’s sensitivity to credit risk and loss

The credit manager’s Management by Objective [M.B.O.] goals

The credit department’s goals

Augustus Hall Limited was able to make the following general comments:

1. It is unusual to have no significant bad debt losses over a two-year period.

2. However, it may be that the credit department is on a lucky streak.

3. It is possible that there are un-collectable balances buried in the A/R that have not yet been acknowledged as un-collectable and written off.




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4. If write offs are calculated net of recoveries, it is possible that recoveries made against balances written off more than two years ago have affected the net amount recorded and written off over the last two years.

5. It is also possible that the credit department is too conservative in its approach to risk management. The credit manager may be at fault, but it is possible and even likely that the credit manager is doing what they believe that senior management expects them to do.




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Scenario 22

Case Study

Background

A client contacted us in November 2010 to discuss non-payment of invoices dated May 2009.

We did not hear from him again until March 2011, the invoices still not paid and now 10 months

overdue. We were requested to do whatever we had to, to recover the debt. If need be wind up the

company.

Our client had attempted several times to get hold of the debtor through letters and telephone calls,

to no avail.

Current situation

We began working on the account and within a week we spoke with the debtor. He had changed

contact numbers and relocated to another part of the country. In communicating with the debtor

we discovered that he had not traded for several months due to personal reasons. After a lengthy

conversation he confirmed that the business was up and running again, and that he fully intended

to pay off his debt.

He had lost everything and had been “living from hand to mouth”, he openly admitted he had

several other debts and so it would be several months before the debt would be settled.

Conclusion

Over the following months we kept communication channels open with the debtor, following his

progress of obtaining more contracts, how and when he would be paid.

In August 6 months later the debt was paid in full to my client who was extremely happy with the

result obtained.

The working relationship has not been harmed between the businesses, if anything Augustus Hall

Limited restored a broken relationship and the parties continue to trade together.

At the outset our client wanted to close the debtors company and go after him personally. If he had

gone this route he would never have been paid. By speaking to Augustus Hall Limited our client




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allowed us to guide in the right direction giving the debtor all the options that were available and,

thereby, gained a positive result.

Credit Control does not have to be aggressive. There can be appropriate reasons for non-payment. Employing a third party like Augustus Hall Limited can defuse a sensitive situation. A professional credit controller can allocate specific daily time to speaking to debtors. Outsourcing can save money and offer qualified advice.

Conclusion

One of few? Unfortunately not - one of many!

In business if the service or product supplied and appropriately contracted for meets the

contracted criteria there are no reasons why payment should not be made as per contract. This is

regardless of the client’s inability to pay, perceived or real.

‘David and Goliaths’ do not exist in this scenario and the damage to reputation is usually harder on

the bigger company’s side.

What is evident though is that debt recovery, when handled appropriately and by an experienced

and knowledgeable third party has a major part to play in a good conclusion and healthy onward

relationship.

case studies on credit control

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