ppc credit management skills

8/3/2019 PPC Credit Management Skills

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CREDIT MANAGEMENT SKILLS

PPC training programmeFacilitated by Lenox Mhlanga

Associate Consultant

Stratways Management Consulting (Pvt) Ltd


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OBJECTIVE

PPC would like to develop creditmanagement skillsin specified areas of needas per the organisations training needs

assessment


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PROGRAMME OUTLINE

1. Improve your accounts receivables, billingand credit collections processes

2. Establish effective credit and collectionpolicies

3. Understand the legal procedures involved indebt recovery

4. Analyse the modes of execution and/orrecovery


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DETAILED OUTLINE

The Streamlined approach to creditmanagement

1. Definition

2. Process

3. Invoicing

4. Results


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OUTLINE CONTINUED

An Entrepreneurial Approach to CreditControl

1. Critical Information in debt prevention

2. Action Plans to overcome debts

3. Strategies to improve relationship betweensales and credit control

4. Effective debt collection


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OUTLINE CONTINUED

Understanding Credit Culture to deliver anefficient Credit process

1. Definition of Debt

2. Credit and Legal Requirements

3. Options for Litigation


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OUTLINE CONTINUED

Workshop discussion on the following:

1. Garnishee orders

2. Attachment3. Judgement debtor summons

4. Fraud prevention

5. Payment delay tactics6. Implementing good negotiation tactics


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CREDIT MANAGEMENT SKILLS

Introduction

Credit management is the process forcontrolling and collecting payments fromyour customers. A good credit

management system will help you reduce theamount of capital tied up with debtors

(people who owe you money) and minimiseyour exposure to bad debts.


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INTRODUCTION

Debt recovery is an important function incompanies. Very few companies canfunction properly on cash business or

without obtaining credit from financialinstitutions.


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INTRODUCTION

Companies that do not give or take creditsare usually very small in size and havelimitation in expanding. Although offering

credit terms to customers is tantamount toexpansion and acquiring big customers,there is always an element of risk involved.

Therefore, many companies implement strictcredit policies to minimize their credit lossarises from bad debts


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THE PROCESS

The process of credit management begins withaccurately assessing the credit-worthiness of thecustomer base. This is particularly important if thecompany chooses to extend some type of credit line or

revolving credit to certain customers.

1. Proper credit management calls for an evaluationprocess that involves

2. Setting specific criteria that a customer must meetbefore receiving this type of credit arrangement.

3. Determining the total credit line that will be extendedto a given customer.


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FACTORS TO BE CONSIDERED

Factors used as part of the credit management processto evaluate and qualify a customer for the receipt ofsome form of commercial credit.1. Gathering data on the potential customers current

financial condition, including the current credit score.2. The current ratio between income and outstanding

financial obligations will also be taken intoconsideration.

3. Competent credit management seeks to protect thevendor from possible losses, and also

4. To protect the customer from creating more debtobligations that cannot be settled in a timely manner.


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THE RESULT

The result of an efficient process of creditmanagement is that everyone involvedbenefits from the effort.1. The vendor has a reasonable amount of

assurance that invoices issued to a client willbe paid within terms,

2. Or that regular minimum payment will bereceived on credit account balances.

3. Customers have the opportunity to build astrong rapport with the vendor and

4. Are able to create a solid credit reference.


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2. AN ENTREPRENEURIAL APPROACH

Knowing your customer

Unless you know exactly who youre trading

with, you wont be able to check if they are

good for the amount of credit you need togrant, you wont be able to commence legal

action effectively if it becomes necessary.


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KNOWING YOUR CUSTOMER

Can you answer yes to all these questions?

Do you know the exact name and tradingstyle of the business? The people orcompany that own the business, and areliable for any debts, may not be the same asthe name under which the business trades.

Types of business include, amongst others,limited companies, partnerships and soleproprietors.


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Question you should ask

It its not a limited company do you know thename(s) and personal address(es) of theproprietor or partners?

Have you seen headed paper ordocumentation that verifies this information?

Have you used a credit reference agency tocheck their details and credit status?


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Does the information support the amount ofcredit theyll need? There are many sources

of information, the most common and readily

available being credit agency reports andreferences.

Have you talked to other suppliers of the

business to obtain references?


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Do the details on the order match those youwere given earlier?

If they were previously dealing with yourcompetitor, are you happy about theirreasons for coming to you?


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KNOWING YOUR CUSTOMER: TIPS

1. Check out the exact name and legal status ofthe business youre supplying. If its a soletrader or partnership, the proprietor or partnersare personally liable so make sure you havetheir full details. Businesses can disappearmuch more quickly and easily than individuals!

2. Dont be afraid to push for all the informationyou needif you cant get it now, it will be farmore difficult later.


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KNOWING YOU CUSTOMER: TIPS

3. Watch out for friendly references that thepotential customer gives you. Referees thatyou choose are far more effective.

4. Invest in credit reference information it couldsave you a bad debt.

5. Set some rules that you (and all youremployees) always follow and dont betempted to break them, even if youre putunder pressure to supply urgently


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PAYMENT TERMS

If payment fails to arrive for goods orservices you have provided, your cashflowcan be under real pressure. Cashflow keeps

business in business and if you think youare being paid on one date and yourcustomer has a different date in mind you

could be in trouble! Making assumptions isdangerous and formally agreeing paymentterms in advance is vital.


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PAYMENTS TERMS

Questions to ask yourself Do you discuss and agree payment terms with your

customers (and with your suppliers) before youaccept (or place) an order?

Do you confirm the agreed payment terms in writingbefore you accept (or place) an order?

Do you negotiate payment terms with your suppliersthat allow you longer to pay than the terms on whichyou are paid by your customers?


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PAYMENTS

Is the payment due date clearly shown on allinvoices?

Do you have a strategy in place for dealing withrequests from customers who suddenly andunilaterally demand a longer time in which topay?

Do you include your right to make late paymentand interest charges on your contracts andinvoices?


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PAYMENTS: TIPS

3. Whenever you write about payment terms,and on your invoices, include the words:We will exercise our statutory right to claim

interest (e.g. at 8% over the bank rate) andcompensation for debt recovery costs if weare not paid according to our agreed credit

terms. Even if you dont intend to do so, itcan be a useful deterrent against latepayment.


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INVOICING

If you dont raise an invoice, you wont get

paid. Invoicing should not be seen as a back-office administrative nuisance. Rather, it is a

vital first-step in achieving healthy cashflow.


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INVOICING

Can you answer yes to all these questions? Do you raise an invoice immediately after you

have supplied the goods or service?

Do you make sure that everything the customerrequires appears on the invoice?

Do you have an effective accounting systemand have you considered using dedicatedaccounting software?


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INVOICING

Do you have a process for investigating andresolving disputed invoices immediately afterthe query is raised?

Do you log the details of disputes so you can fixany avoidable root causes?

Do you keep documentation relating to disputesas evidence in case the problem escalates?


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INVOICING

Do you keep a record of the customers thatdispute invoices so you can spot any who doso regularly as a way of avoiding prompt

payment?

Do you ensure your sales invoices are fullycompliant with Vat requirements?

Do you clearly indicate any reference thepayer must quote so you can identify the

payment?


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TIPS FOR INVOICING

3. Ask customers what they need on theinvoice in order to approve it simply andquickly. Include at least the following:

Your full name and addressYour VAT registration number

Invoice date

Correct customer name

Correct customer address

Delivery address (if different)


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TIPS FOR INVOICING

Delivery date and method Customer Purchase Order number

A clear description of the goods or service supplied

Accurate quantities, prices, discounts and total amount

due Payment terms and due date

How payment should be made with bank details(including sort-code and account number from bank

statement) Invoice number or other reference to be quoted by payer

Payment terms and due date bank statement and thereference to be quoted if payment is by direct credit.


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TIPS FOR INVOICING

4. Include the words: We will exercise ourstatutory right to claim interest (at 8% over theBank rate) and compensation for debt recoverycosts under the Late Payment legislation if weare not paid according to our agreed creditterms on every invoice, and print your termsand conditions on the back.

5. Have a system for resolving disputed invoicespromptly, especially if a customer is using asmall query to withhold.


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CHASING PAYMENT

When you get paid, the sale is complete.When a customer doesnt pay, theyre

hanging on to money that is rightfully yours

and you should ask for it. You should have aroutine system for following up non-paymentthat includes letter, email, and telephone, but

be prepared to act more quickly if the amountis large or you are concerned about thecustomer.


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CHASING PAYMENT

Can you answer yes to all of these questions? Did you agree the payment terms with the customer

before you accepted their order?

Are you sure the invoice is accurate and no disputehas been raised?

Has the payment due date passed?

Has the customer confirmed receipt of the invoice?

Do you have proof of delivery for any goodsdelivered?

Does the invoice say how and where payment shouldbe made?


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TIPS FOR CHASING PAYMENT

1. If the invoice is large, call the customerbefore the payment due date to make sure ithas been received and there is no query;

this is good customer service.2. Make immediate contact when payment has

not arrived, be assertive about what youexpect and when you expect it, and make

the consequences of non-payment clear.Follow up promises to make sure theyremet.


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TIPS FOR CHASING PAYMENT

3. If a customer persistently pays you late or makesexcuses, check them out and consider whetheryoure prepared to continue supplying on creditterms. It may be better to lose an order, or even thecustomer, than supply goods, not get paid and suffera bad debt (when that happens you lose the goodsand the money youre due).

4. Be polite, professional and persistent; do what yousay youre going to do when you said you were

going to do it.5. Try to get customers to pay by electronic transfer or

Direct Debit to avoid waiting for the cheque to arrive.


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3. UNDERSTANDING CREDIT CULTURE TO

DELIVER A MORE EFFICIENT CREDITPROCESS


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POLICIES AND PROCEDURES

A good Credit Policy covers all aspect of thebusiness transactions ranging from review ofpotential customers creditability toascertaining the amount and duration ofcredit terms. No matter how good and solid isa credit policy there is no way that it caneliminate credit loss totally. However, a good

and effective credit policy could help todetermine calculated loss and minimize itsimpact to the business.


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CUSTOMERS CREDITWORTHINESS

1. In order to make a good judgement on thecustomers credit worthiness, it is importantto take note of the following points:

2. The company must have a good track

record of sales achievement.3. The sales and profit must be on a gradual

increase year by year. A gradual decliningsales and profit is a bad indicator of the

companys future performance. Also lookout for sudden dip or surge in sales andprofit without justifiable reasons.


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CUSTOMERS CREDITWORTHINESS

4. A good cash flow management is important toensure the companys on-going concern.Ensure that the company practices that.

5. The company should have a positive NetEquity position. (Total Assets less TotalLiabilities) A negative position means that thecompany is in serious financial status orinsolvent.

6. The company practices good debt recoveryprocedures and a credit policy.


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CREDIT MANAGEMENT PROCEDURES

A good credit management procedure ispertinent to ensure an effective credit policy.The procedure forms the basis on how to

determine the potential customers creditworthiness and what amount of credit andterms to give. It also covers how thecompany would monitors and manages its

trade debtors. The following are someimportant actions to take and consider whenmanaging your trade debtors:


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CREDIT MANAGEMENT PROCEDURES

1. Perform credit evaluation if new and exitingcustomers regularly.

2. Assign credit limit to each of your customers.

Avoid giving unlimited credits.3. Set clear payment terms with your customers.

Ensure that they are aware of the credit termsand practiced within them.

4. Ensure that your invoices and monthlystatements are accurate and sent to yourcustomers promptly.


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CREDIT MANAGEMENT PROCESS

5. Ensure you have the supporting documents forall unpaid amounts readily available.

6. Perform periodical follow up on outstandinginvoices or balances.

7. Keep records of all telephone conversationsand corresponding letters to and fromcustomers.

8. Do be afraid to consider legal actions if you

feel payment is not forthcoming.9. Get customers to provide written

acknowledgement on big invoices or bigamount owing.


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CREDIT MANAGEMENT PROCESS

There is no use making a lot of sales if youcannot collect the money. Giving too muchcredit and too long credit term can hurt yourcashflow. It is better to reject a big businessdeals if there is a potential credit risk involved.

A company cannot survive without strongcashflow. Therefore a good and effective debt

recovery and credit management procedureswould stabilized the companys cashflow andensure on-going business concern.


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CREDIT MANAGEMENT TIPS

Good credit management is vital to your cashflow. It is possible to be profitable on paperand but lack the cash to continue operating

your business. It is best to minimise thelikelihood of bad debts through good creditmanagement practices.


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TERMS AND CONDITIONS

The following suggestions will assist you inpreparing your own policies and procedures forcredit management:

1. Clearly state in writing your terms andconditions of trade and your credit policy inwriting.

2. Draft terms and conditions that suit yourbusiness.


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3. It is strongly advised you seek legal advicebefore finalising the document to ensure it hasinternal consistency and covers all the keyissues.

4. It's also important to ensure the documentdoes not contain any illegal terms and can berelied on in the event that court action is

necessary to recover a debt.5. Include your terms on all quotes, estimates,

contracts, agreements, purchase orders,andrelated documentation.


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6. Clearly specify what will be supplied, whenthe work will be done, and when and howpayment is to be made.

7. Obtain a written acceptance of theagreement along with written approval ofany variations to the original agreement.


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Some terms and conditions that you couldconsider:

Penalties for late payment you must

specify the exact fees and rate of interest;

Retention of title' clause where the seller

retains title to the goods until payment is

made; Your policy on returns and refunds;


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Continued

Your policy on refund of deposits;

Incentives for early payment; and

Whether a fee is charged for payment bycredit card. (The amount in dollars or thepercentage to be charged must be

disclosed.)


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INVOICE PROMPTLY

Include accurate details on your invoice forthe goods or services supplied, the amountdue along with the date and preferred

payment method. Always try to resolveinvoice queries or disputes quickly.


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MONITOR YOUR DEBTORS

Maintain your debtors' records to identify anydue or overdue debts. Develop a goodrecords management system and keep

records up to date so you can quickly identifywho owes you money and how much isowed.


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MONITOR YOUR DEBTORS

Take a proactive approach to creditmanagement by contacting clients a fewdays before the due date to remind them a

payment is due and ask if they foresee anyproblems with meeting their payment.

Implement your debt collection practices the

minute a debt becomes overdue and ensureclients do not exceed their credit limits.


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CREDIT APPLICATION PROCESS

It is sometimes possible to increase sales bygranting credit to selected clients who maychoose to do business with you because of

the convenience offered by a credit account.If you choose to provide this option be sureto develop a sound credit application process

which includes a thorough check of clientcredit ratings before granting approval.


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CREDIT APPLICATION PROCESS

Allowing some clients to purchase on creditis like offering them an interest free loan, andyou are not obliged to provide credit to risky

clients. Allowing clients to defer paymentsincreases the risk of bad debts occurring anddraining your cash flow, so it's vital that you

identify good customers and screenbusinesses with a poor credit history tominimise bad debts and avoid cash flowproblems.


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CREDIT APPLICATION FORM

Develop a credit application form and have the draftchecked by your lawyer. The credit application andapproval process could include, but is not limited tothe following steps:

The completion of a credit application form whichrequests full business and personal contact details,trading name, credit guarantors, referees, companyregistration number and the number of years inbusiness;

Asking for details of suppliers who can be contactedas referees and then checking the client's paymenthabits with the referees;


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Requesting bank references;

Asking the client to sign a directors'guarantee which makes the directors of a

company personally liable for any debtsincurred with your business;

Checking the client's business registration

with the Registrar of Companies;


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Obtaining a credit report to determinewhether the client is credit worthy. A range ofcredit reports can be obtained from

commercial information brokers. Discuss thereports available and the costs involved withindividual broker firms; and

Periodically evaluating the credit rating ofyour existing credit clients


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ALTERNATIVES TO PROVIDING CREDIT

You may find it necessary to reject creditapplications in some cases. Rather than risklosing the client entirely, you might suggest

alternative payment methods while yourclient establishes a trading history with you.Review the client's situation after a specified

volume of trade, number of orders, or periodof time.


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ALTERNATIVES TO PROVIDING CREDIT

The alternative methods may include: Requesting cash on delivery ( COD ) for new

clients until a trading history is established; Collecting a deposit before making a supply to

cover costs of materials and overheads, and asan indication of their ability and intention to pay;

Collecting progress payments that are linked toachieving major milestones. Progress payments

are common in the construction and buildingindustry; and

lay-by


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4. UNDERSTANDING LEGAL PROCEDURES

AND DOCUMENTATION


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DEBT RECOVERY

You may still incur bad debts even withsound credit management policies andprocedures. There are a several methods

with escalating degrees of severity that youcan use to recover these bad debts. It isadvisable to use a measured approach and

select the most appropriate method torecover the debt while maintaining therelationship with your client.


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DEFINITION OF DEBT OWING

A debt exists when a person or organisation(a debtor) owes you money for any reason,for example following your supply to them of

goods or services You might use a letter ofdemand to advise the debtor of the amountoutstanding and threaten court action to

recover the debt if it is not paid within acertain time.


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DEFINITION OF DEBT OWING

Essentially, an unpaid invoice is a breach ofcontract. Disputes arise when parties to a contractdon't do what they agreed - in this case - payingfor products or services supplied. Generally, your

debt collection options include:1. Personal communication and consultation with

your client2. A written request to settle the debt (letter of

demand)3. A debt collection agency4. Legal action.


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COMMUNICATION

Chase overdue invoices immediately.Contact your client by phone or email the dayafter the invoice is due. This lets your client

know that you keep close track of youraccounts receivable. Sometimes invoices getlost or overlooked, so maintain positive

relationships with your client and be politeand friendly.


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COMMUNICATION

Ask if the client is experiencing a short-termproblem or if there's a valid reason for notmaking the payment. Decide how valuable

the client is to your business. You may bewilling to temporarily extend their creditterms, or you might cancel the client's credit

agreement if late payments become apersistent problem.


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COMMUNICATION

If communication and consultation with theclient does not result in payment of the debt,you may decide to send a letter of demand.This gives your client the opportunity to pay the

debt without spending the time and moneyassociated with legal proceedings. Keep a copyof the letter of demand you send the client as itmay be required as evidence that you tried torecover the debt if you proceed with legalaction.

Either you or your lawyer can draft a letter ofdemand.


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LETTER OF DEMAND

A letter of demand is sent to a person ororganisation who owes you money (a debtor)following your supply to them of goods or

services The letter advises the debtor of theamount outstanding and threatens courtaction to recover the debt if it is not paid

within a certain time. A sample is providedbelow which can be used as a guide.


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WHY SEND A LETTER OF DEMAND?

A letter of demand serves two purposes:

First, it warns the debtor of your intention tocommence legal proceedings unless payment is

made and gives the debtor one moreopportunity to pay.

Secondly, the letter is a document which may be

tendered in evidence during court proceedingsas written proof of your claim of the debt owedand your attempt to settle the matter.


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LETTER OF DEMAND

Copies of any relevant documents such ascontracts, letters of agreement, invoices, etc,should be listed and attached to the letter ofdemand to assist the debtor to identify the

transaction and their liability to pay. It is advisable to send the letter of demand by

registered post or fax to confirm receipt anddon't forget to retain a copy for your records.

Only one letter should be sent and you shouldbe prepared to act on your threat to initiate legalaction otherwise the debtor may simply call yourbluff.


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LETTER OF DEMAND

When drafting a letter of demand youshould not:

harass the debtor they have the right to

complain about this behaviour to particulargovernment agencies and the police; and

send a letter which is designed to look like a

court document.These debt collection practices are illegal.


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LETTER OF DEMAND

The letter of demand should: State details of the debt ( dates, agreements,

amounts due, and days overdue)

Include copies of applicable quotes orinvoices

Request that payment be made by a certaindate

Warn that debt recovery options will bepursued if payment is not received by thenominated date.


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DEBT RECOVERY

What should I do to pursue a debt?Debt collection is a legitimate and necessary

business activity where creditors and

collectors are able to take reasonable stepsto secure payment from consumers orbusinesses that are legally bound to pay orto repay money they owe. It is important that

any organisation involved in recovering debtis aware of their legal obligations.


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DEBT RECOVERY

You should treat debtors and third partiesfairly and with respect and courtesy.

You should never harass or coerce them,

treat them unconscionably or mislead themas to the nature of their debt, their legalobligations or any possible outcomes if thedebt is not paid.

You should also not pursue a person for adebt unless you have reasonable grounds forbelieving the person is liable for the debt.


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DEBT RECOVERY

Contacting a debtor

Communications with the debtor must alwaysbe for a reasonable purpose, and should only

occur to the extent necessary. It may benecessary and reasonable for you to contact adebtor to:

give information about the debtors account convey a demand for payment


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DEBT RECOVERY

accurately explain the consequences of non-payment, including any legal remediesavailable to the collector/creditor, and anyservice restrictions.

make arrangements for repayment of a debt

put a settlement proposal or alternativepayment arrangement to the debtor

review existing arrangements after an agreedperiod


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DEBT RECOVERY

ascertain why earlier attempts to contact thedebtor have not been responded to within areasonable period,

ascertain why an agreed repaymentarrangement has not been complied with,

investigate whether the debtor has changedtheir residential location without informing you,

when there are grounds for believing this hasoccurred

sight, inspect or recover a security interest or forother similar purposes.


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DEBT RECOVERY

You may also contact a debtor at thedebtors request.

However, it is not reasonable or acceptable to

contact a debtor to: frighten or intimidate the debtor

demoralise, or exhaust the debtor

embarrass the debtor in front of other people

or for other similar purposes.


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DEBT COLLECTION

Hiring a debt collector A debt collector recovers payment on behalf

of another person for outstanding debts that

individuals or businesses are legally obligedto pay. Demands for payment can be madein writing, verbally over the telephone, or inperson.

Debt collection agencies charge a fee orpercentage of the total amount collected.


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CONTRACTUAL OBLIGATIONS

Commercial contracts are the basis of doingbusiness. Whether they are purchase orders,supply contracts, exclusive agency agreements,

partnership agreements, franchise agreements,or leases, businesses enter into contracts withothers on a daily basis.

Disputes arise when parties to a contract don't

do what they agreed. It is preferable to resolvethe dispute without court action whereverpossible.

CO C S
http://www.smallbusiness.wa.gov.au/business-contracts/http://www.smallbusiness.wa.gov.au/business-contracts/


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CONTRACTS

First, read the contract and other associateddocuments to clarify the rights and obligations ofeach party about the issue in question. In manycases, a well-written contract will set out what

both parties have agreed and the actionrequired will often be obvious. Also, check your contract for a clause that

outlines a process for dealing with disputesbetween the parties. If the contract or otherassociated documents do not clarify the issue,obtain professional advice

CONTRACTS
http://www.smallbusiness.wa.gov.au/hiring-a-lawyer/http://www.smallbusiness.wa.gov.au/hiring-a-lawyer/


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CONTRACTS

There are three options available to resolveyour contract dispute:1. Informal negotiation:The cheapest and

easiest thing to do is attempting to resolve the

dispute through discussion. Try to resolve theproblem through talking and informalnegotiation with the other party. Often theparties to the contract can negotiate aresolution that is satisfactory to both withoutthe need for formal mediation. Remember toconfirm any verbal agreements in writing.

CONTRACTS


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CONTRACTS

2. Mediation and arbitration:mediation orarbitration is another option to resolve thedispute if informal negotiation fails. It is a wayof reaching an agreement that is usually

cheaper and quicker than using the courts. Anindependent mediator will assist to negotiatean outcome which meets the interests of bothparties. Mediation is not a binding legal

process but the agreement can be enforced ifnecessary.


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CONTRACTS


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CONTRACTS

3. The Courts:you may find it necessary to takethe dispute further if other forms of resolutionhave not been successful.

Before you seek a resolution in the courts,carefully consider whether the issue is worth thedamage it may cause to the relationship with theother party. Further, this option can beexpensive and time consuming. However, if youhave a good case and the dispute cannototherwise be resolved this could be your bestoption.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

Sometimes, you just cant get paid. Youve doneall the right things and the money has still notarrived. The longer the debt remains unpaid, themore likely it is to turn into a bad debt and bad

debts damage your business. Legal action isalways an option but there are others youshould also consider.

Be prepared to follow through with any warningabout legal action in your letter of demand.Some legal proceedings may become complexand expensive.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

Questions you need to ask before taking legalaction

Are your invoice(s) raised in exactly the rightname? or your invoice(s) have all theinformation required by the customer?

Has the customer confirmed receipt of theinvoice(s)?

Are you sure there are no queries? Do you have proof of delivery if the debt relates

to goods supplied, or a signed order forservices?


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LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

If the answer to all these questions is yes,its probably time to move to the next stage

and consider:

Taking legal action either yourself or using asolicitor commencing legal action isrelatively easy but takes time and effort.

Using a lawyer will save you effort but costyou more if the debt and costs arent

recovered.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

Using a debt collection agency to act for you.They will often work on a no recovery no feebasis, collecting debts is their specialist area,

and most will escalate action through theirown legal partners if it becomes necessary.You should be aware that the percentage

commission can be substantial if theysucceed, especially if the debt is large.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

Issuing a Statutory Demand that you canfollow up to 21 days later with a bankruptcy(individual) or winding up (company) petition.

You need to bear in mind that, if thecustomer fails to pay, their insolvency mayfollow and you are then even less likely to

recover the debt.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

Five top tips1. Make sure the invoice details are accurate

before you consider taking further action.

2.

Always write and advise your customer thatyou will be exercising your statutory right toclaim interest (at 8% over the Bank of Englandbase rate) and compensation for debt recovery

costs under the Late Payment legislation andthat you will be taking further action thismight be enough to prompt them to pay.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

3. If you cant get paid for the outstanding debt,dont let it grow. Stop supplying any further

goods or services. If your product or service is

important to your customer, it might be just thelever you need to get payment.

4. Always consider the commercial reality if thecustomer is insolvent or has no available

funds, further action is unlikely to help, andconsider the costs of any action against thesize of the debt.

LEGAL PROCEEDINGS


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LEGAL PROCEEDINGS

5. Check out any solicitor or agency beforeyou instruct them; make sure they belong totheir appropriate trade association or

professional body and check that theirbackground and expertise matches yourneeds.

WHEN YOUR CUSTOMER GOES BUST


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WHEN YOUR CUSTOMER GOES BUST

Inevitably, businesses fail and when one of yourcustomers goes bust it hurts. There is little youcan do except wait to hear the outcome.

The general outcome is that the debtors assetsare divided amongst its creditors and theinsolvent debtor is released from the burden ofits debts.

Once most formal insolvency processes areunderway, you cannot start or continue anyaction to recover your debt.

It helps to understand the main types of

insolvency

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Bankruptcy Bankruptcy can only apply to individuals

(including sole traders and individual

members of a partnership). Bankruptcypetitions may be presented to the court bythe individual, by creditors, or by the

supervisor of an individual voluntaryarrangement. A bankruptcy order is made bythe court.

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Individual Voluntary Arrangement An individual comes to an arrangement with creditors

to pay his/her debts in full or in part over time as analternative to bankruptcy. The arrangement is set up

by a licensed Insolvency Practitioner who will put it toa meeting of creditors. If the proposal is accepted atthe meeting, the agreement reached with thecreditors will be legally binding. An Interim Order issometimes issued by a court and will immediatelyprotect the debtor from any legal action by creditors.

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Company Voluntary Arrangement A company comes to an arrangement with its

creditors to pay the debts in full or in part over

time. A CVA begins with the company (or itsadviser) drafting a formal proposal at aCreditors Meeting to pay part or all of the debts.

If the proposal is accepted by the creditors, the

arrangement will become legally binding and thedirectors will retain control of the company.

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Compulsory LiquidationCompulsory liquidation is the winding up of a

company or a partnership by a court order (a

winding up order). A petition is normally presented to the court

by a creditor stating that he or she is owed a

sum of money by the company and that thecompany cannot pay.

COMPULSORY LIQUIDATION


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COMPULSORY LIQUIDATION

The Official Receiver becomes liquidatorwhen the order is made but an InsolvencyPractitioner will be appointed to take over if

the company has significant assets. The liquidators role is to realise the

companys assets, pay all the fees and

charges arising from the liquidation, and paythe creditors as far as funds allow in a strictorder of priority.

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Creditors Voluntary Liquidation In a creditors voluntary liquidation the shareholders

pass a resolution to wind the company up without theneed for a court order.

A Creditors Meeting is held to nominate theappointment of a liquidator and consider a statementof affairs.

Creditors can appoint a committee to work with theliquidator, whose role is to realise the companys

assets, pay all the fees and charges arising from theliquidation, and pay the creditors as far as funds allowin a strict order of priority.

TYPES OF INSOLVENCY


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TYPES OF INSOLVENCY

Administration Administration applies to limited companies and

partnerships and is intended to get the companyout of trouble and trading again if possible.

Administrators can be appointed to a companythat is unable, or is likely to become unable, topay its debts.

They can be appointed by the courts (on

application from a creditor, directors orpartners), the holder of a qualifying floatingcharge over the assets of the business, or thecompany or its directors.


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INSOLVENCY


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INSOLVENCY

Five Top Tips

You should be contacted automatically by the OfficialReceiver or Insolvency Practitioner if they know thatyou are a creditor.

If you believe an individual may be subject toinsolvency proceedings and you have not heard, findout.

If you believe a company may be subject toinsolvency proceedings and you have not heard,

check with the Registrar of Companies. If in doubt, contact the Official Receiver or Insolvency

Practitioner to make sure they have details of your

ppc credit management skills

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