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Bad debts. Who is to blame?

Its not often that I come across a posting where I find myself agreeing with not just every word but also nodding along with some very pertinent insights. The insights that only come from genuine experience and not from a manual or pure theorising

Jim Sleith of JMS Credit consultancy is based in Scotland so although we cover the same areas of expertise we are thankfully not on each others patch. I am therefore happy to reproduce his excellent recent posting to Linkedin on where the blame lies for bad debts.

Having spent many years in Credit Management I have seen some horrific sales ledgers and bad debt levels, but who is to blame?

Is it the Sales Team who would sell their Granny if they could get a commission for the “sale”?

Is it the Credit Control Team for not collecting the debts?

OR

Is it the Financial Directors/Managing Directors ?

How can you possibly blame the Financial Directors/Managing Directors some may ask?

Well it all comes down to investment and support in business processes, software, and supporting the Credit Control Team.

So many ledgers are full of overdue debt and it is not the fault of the Credit Control Team.

If you don’t invest time and make an effort to strip it all back and address the issues at the outset, then of course the same issues will arise time and time again.

So what needs to be done?

The Financial Directors/Managing Directors must acknowledge that they need good quality staff in the Credit Control Team.
Don’t just approach any old Recruitment Agency and ask them to source “Someone to chase debts”
Approach an agency with an understanding of Credit Control and recruit good quality all round Credit Control staff.
Having recruited said quality staff the Financial Directors/Managing Directors MUST allow them to use their experience and knowledge to truly control credit not just chase debt.
Having identified the issues preventing collection (be those issues with on boarding and/or identification of customers, continual customer disputes etc) a process needs to be put in place to resolve and prevent issues recurring.
In doing so, it is imperative that a good credit control policy is put in place which outlines not only how to deal with new credit requests, but who has authority to grant or refuse credit and to what value.
A good policy will outline documents/information required before granting credit. It is important that the policy is supported by strong terms and conditions of business/sale.
It is vital that having granted credit that the customer is advised of their credit limit.
It is also a important for the Sales Person/Account Manager to highlight company policy on late/non payment and the rights to charge interest, late payment compensation and legal/collection costs. Doing so at the outset ensures no surprises for the customer in the event they delay in paying.
The policy will further outline the collections process from sending invoices (yes, sending an invoice is a request for payment) and at what point account managers will be asked to get involved.
It will also outline how long it should take to update customer accounts with payments and how to deal with unidentified payments.
It will state who has authority to refer accounts to solicitors or collection agencies and at what stage (be it after 3 reminders, a couple of phone calls etc) the accounts are escalated for further action.
Having created the credit policy it then needs buy in from sales/account management teams. To get that buy in it is important to put the policy forward in presentation format and allow Sales/Account Managers to have input.
Having taken account the input of Sales/Account Managers and made any amendments, it is important to put the policy in to practice without delay.
The Financial Director/ Managing Director needs to ensure that the message is delivered loud and clear that this is company policy. Failure to adhere to the policy will be looked upon and dealt with in the same manner, as breach of any other company policy.
So having highlighted what I consider best practice, how do you lay the blame for bad debts/old debts on the Financial Director/Managing Director?

In my experience –

There is no desire to put a policy in place.
Companies review debt levels as they approach year end and panic!
They then approach those non specialist recruitment agencies and ask for a ” Phone Basher” to collect debts. More often than not they don’t have a proper job specification or the credit control role is not defined.
In order to minimise the risk of late payment and bad debts, proper consideration needs to be given to the credit control function.

The credit control function needs the tools and support to do the job properly.

Speculate to accumulate, investment will yield results, cause less headaches, and a proper credit control and collections policy will cause less friction between all the relevant stakeholders.

It is unfortunate that so many company Financial Directors/Managing Directors can’t see the importance of a properly resourced Credit Control Department supported by strong policy.

We can but hope that the more focused Financial Directors/Managing Directors become on cash in the bank that things will change for the better.

LikeLate payments & Bad debt – Blame the sales department?

 

 

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