Debt Recovery Associates

 

 

While it is difficult to imagine a business operating without offering credit to customers, maintaining a healthy cash flow is essential for a business to thrive. The availability of ready cash is crucial for ongoing commitments and further growth. Encouraging prompt payments from customers will ensure a timely turn around of cash within your debtors’ accounts and assist with the credit collection process.

Having a healthy cash flow means there will be a continuing growth in supplies which will in turn, generate further sales. It also provides sufficient moneys to ensure the payment of creditors. Maintaining the cycle by careful monitoring of your accounts is a positive step on the road to operating a successful business.

1. Screen Customers

Many debt recovery problems can be prevented by only offering credit to those customers with reliable credit history. Taking on a potential customer that you know to be in a high risk category is likely to result in disappointment. Debt collection agencies provide credit checks as part of their services. Spending a few dollars initially to screen customers could save many dollars in the long term.

2. Set Trading Terms

As part of the account application the trading terms need to be set out and clarified with the customer. Make sure they know what they are agreeing to so there is no doubt come the due date that the account is to be paid in full.

3. Invoice for Goods Received

If goods received equals a sale, then a sale requires an invoice. It is good practice to produce an invoice as part of the handing over of the goods. If you are providing a service consider progress payments for work done at agreed times.

4. Offer Payment Options

Long gone are those days of paying accounts by cheque, though there are still some people who insist running a cheque book is the only way to keep track of expenses. Giving your customers more than one option for payment makes it easy for them. Advise details of your bank account either on the invoice or in a separate letter, for internet payments.The more options available the better the chances of bills being paid on time.

5. Update Contact Information

Receiving unopened and returned invoices will leave you with a sinking feeling. What to do if the customer has skipped town or moved address without letting you know? Confirm you have the correct address on file every time a sale is processed or you may need to engage a professional collections agency to follow through with a skip trace across the nation.

Prevention is Best

Prevention is always better than a cure. Take care in the preparation and set up for any new credit account and be consistent with invoicing, sending out accounts and following up those slow payers. In no time the cycle will be in full swing and your cash flow maintained.

 

The key to keeping your business in the black is to have good accounting and bookkeeping practices from the very outset and this article looks at some of the best ways for a small to medium business to stay organised and out of debt.

Have sufficient capital

Many small businesses go under in the first year because they do not take sufficient capital into the business at the start. They take out loans, with the intention of paying them with profits, but if profits do not come immediately, as is often the case, they find themselves with no cash flow and lenders demanding repayment. You need to have enough money to cover running expenses and your own living expenses for the first to three years at least, or until such time as you can realistically expect to start making a decent profit.

 

Have a business plan

It is important to have business plan, no matter how small your business may be. A business plan consists of a:

• Break-even analysis, which involves working out all your costs and determining how much product or service you need to sell each month and at what price in order to make a profit.
• Profit-and-loss forecast, which is determining how long it will take you to make a profit.
• Cash flow projection, which is estimating and planning for likely future surpluses and shortages in your cash flow over the next 12 months.

Decide on an accounting system

The accounting system you adopt will depend on the size and nature of your business and its expected future growth rate. While you may be able to get away with an Excel spreadsheet or a set of ledgers while your business is very small, you will still need to factor in whether you plan to grow rapidly, in which case you will need an accounting package that can accommodate that growth. With so many cloud-based finance options now available, many businesses are opting for these over expensive software packages, as they allow you to only use and pay for the features that you need.

Pay your bills early

Rather than holding off paying your bills until the last minute in order to earn a few extra dollars in interest on your money, pay your bills early and earn a much more valuable reputation among your suppliers and trading partners. This practice can also earn you discounts with certain suppliers and can help you to negotiate better credit terms with them in the future.

Put it in writing

Oral agreements aren’t worth the paper they’re not written on. Put everything in writing, from staff employment conditions and contracts of service to purchase orders and leasing and storage agreements. This will save you a lot of time, money and headaches further down the track when someone disputes an agreement or reneges on payment.

Don’t mix business and pleasure

Always keep your business and personal finances separate. Set up separate bank accounts and if you take money from the business, make sure there is a clear record of the transaction. This rule also applies to borrowing for the business. Try not to ever use your own assets as collateral for loans, because if your business fails, you will lose those assets to your creditors.

Have an accounts receivable policy

You are going to receive late payments and bad debts, whether you like it or not, so draft an accounts receivable policy to deal with this. Include your trading terms and conditions in all documentation and in any contracts you enter into and if payments are overdue, have a process for dealing with it. This could include penalties for late payment, writing letters of demand and engaging a debt collection agency for those debts you are not able to collect yourself.

Keep accurate records

Making a note of expenses as and when they occur can make tax time a lot easier and ensure you get any deductions that you are entitled to. As well as tracking expenses, you should also plot major expenses you are likely to incur in the next few years, such as computer, plant or equipment upgrades, and set money aside for them whenever you have a surplus during the year. You should also adopt this practice for your taxes, so that if you end up owing the tax man, you already have the rough amount put aside to cover it.

Outsource when necessary

No one can be an expert at everything. If accounting or bookkeeping is not your strong point, don’t risk messing it up or spending all your time trying to work it out, when you should be focusing on your business. While an outside accountant can cost you some money, their services will pay for themselves over time, by helping you to avoid costly errors and to take  advantage of savings and efficiencies that you might not have been aware of yourself.

Conclusion

Keeping your accounts in good order is the best way to make sure your business gets up and running in the first place and then is able to ride out the financial ups and downs it will inevitably face along the way.

Being organised and methodical in your record keeping, taking advantage of the latest technology and seeking help whenever you need it are all excellent ways to ensure that you build and maintain a sound financial base on which to grow your business into the future.

 

Knowing what you are owed and when you are likely to be paid is vital for making effective and informed business decisions. An efficient accounts receivable system is necessary to ensure this information is accurate and timely

Invoice

From the moment you send out your invoice for payment, your customer should be in no doubt as to your payment terms. That means providing a detailed invoice which includes:

• The amount that is owed
• An itemised description of what was purchased
• When the invoice is due (i.e. 30, 60 or 90 days)
• Any late payment penalties that might apply
• How the invoice is to be paid (i.e. cheque, credit card etc).

Ideally, before you give a new client credit, you should make them fully aware of your payment terms. This way it will come as no surprise to them when you reiterate the terms on their first invoice.

Tracking

A good accounts receivable system will show you at a glance where any particular customer is in the payment process. Whether you use a simple Excel spreadsheet or more advanced accounts receivable software, your system should allow you to easily track the progress of your outstanding invoices. This will allow you to take the appropriate action at each stage of the recovery process.

Stages

There are several stages in the recovery process that should be reflected in your accounts receivable system. These include:

• Initial invoicing
• First reminder letter, usually after 30 days
• Second reminder letter with a polite demand
• Third reminder letter with a threat of legal action
• Fourth reminder letter with specifics of legal action
• Take legal action or hand the debt to a recovery service
• Solicitor letter, which can be arranged by a reputable recovery service.

Software

If you send out more than a dozen or so invoices a week, you should look at investing in a good accounts receivable software program. This will save you a lot of time and money. It should also speed up the recovery process considerably. A good accounts receivable software program will have features such as:

• Invoice generation tailored to each specific client
• Inbuilt alerts when clients exceed their credit limits
• Doubtful and bad debt folder creation
• Mail-merge reminder generation
• Report generation
• Monthly statement generation.

Debt recovery

The final stage of the accounts receivable process is when a debt becomes doubtful or bad, meaning that the customer is unable or does not intend to pay you what is owed. If you are a small business owner, chasing bad debts yourself can be an unpleasant and time-consuming process. Therefore, many businesses opt to hand the debt recovery process over to a debt collection service.

A good debt recovery service can elicit payment from most customers. Some even offer ‘no win, no fee’ terms, so a business really has nothing to lose by utilising their services. Hopefully though, by maintaining an efficient accounts receivable system, the number of invoices progressing to this stage will be minimal.

 

 

Cash flow is the amount of money that comes in and out of a business over a given period of time. While ideally there will always be more cash coming in than is going out, there will inevitably be times when this is not the case and that is why managing cash flow is so important for a business.

This article looks at how to create a cash flow forecast and some of the ways you can manage your cash flow better to ensure the long term health of your business.

How to forecast cash flow

A cash flow forecast is a document that shows the amount of cash a business expects to receive through payments for goods or services and the amount it expects to pay out on monies owed. It is usually a snapshot of a specific period, ideally a week or a month.

 

The steps involved in creating a cash flow forecast are as follows:

• Add in your current bank balance – this is the cash that you have on hand.
• Add any cash owed to you that you expect to receive during the period – ideally this should be based on factors such as your payment terms and the payment habits of particular customers.
• Add in the amount that you expect to earn in sales over the period – this will obviously be an estimate, but it can be made more accurate by referring to sales figures from previous periods.
• Add in all your expected outlays over the period – these will include known expenses such as rent, inventory, wages, debt payments, withholding amounts,  tax, superannuation, utilities, office supplies, advertising costs and vehicle and equipment maintenance and running costs.
• Consider and include any variables that may affect your final figure, such as a new product line you are introducing that may increase your sales, or the emergence of a new competitor who may take some of your market share during the period in question.
• Compare the total expected outgoings with total expected income and you will either be left with a surplus or a deficit.

It is important to revisit previous cash flow forecasts periodically in order to compare projections with actual outcomes. This will allow you to fine tune your future estimates up or down, depending on how accurate they were in the past. If your current cash flow forecast produces a deficit, then you need to look at ways of managing your cash flow more efficiently.

How to manage your cash flow

It is not the end of the world if your cash flow forecast predicts a loss for the coming month. It is actually a good thing in a way, because you have managed to foresee it early and you can now take measures to reverse that outcome in the future.

There are a number of ways to manage your cash flow so that it has a better chance of remaining in surplus each month. One thing you can do to make your cash flow more consistent is to make your accounts receivables more efficient. Ways to do this include:

• Having clearly understood payment terms, with penalties for late payment,so that debtors are more likely to pay on time, thus allowing you to be more accurate in your cash flow predictions.
• Invoicing promptly and preferably by email, so that there is always a clear record of the invoice being sent.
• Making payment easier for customers, such as offering online credit card payment.
• Encouraging regular clients to pay by direct debit, which will then guarantee you are paid on time each month.
• Offering discounts to encourage clients to consistently pay on time.
• Following up promptly on slow paying customers and referring defaulters over to a collection agency.

Other things you can do to manage your cash flow more efficiently include using the latest technology such as accounting software or a cloud based service to ensure greater accuracy of your cash flow entries.

You can also take full advantage of creditor payment terms, paying via electronic funds transfer on the last due day in order to retain your funds for longer. You could also negotiate longer payment terms with your creditors, particularly if you are a long-standing customer.

In essence, cash flow management is about delaying your outlays for as long as possible and speeding up the arrival of your incoming cash. Sometimes however, the unexpected will happen and you will find yourself looking at a shortfall. Fortunately, there are several things you can do beforehand to make sure you survive such a temporary lack of cash. These include:

• Developing a good relationship with your bank and keeping them regularly informed of your financial situation, so that if you do need some quick help, they will be more likely to give it.
• Establishing a line of credit with your bank so that there is always money to call on if you need it.
• Developing good relationships with your suppliers, so they will be more flexible if you find yourself needing more time to pay.

Cash flow is the lifeblood of your business and cash flow forecasts are just as important as your business plan or your mission statement. They need to be done regularly and accurately to allow you to see in an instant how your business is travelling and what adjustments you need to make to ensure your cash flow continues and grows along with your business.

 

There is no hard and fast rule for when a business should consider passing its outstanding debts on to a collection agency. For some businesses it is when unpaid invoices go beyond 90 days, while others make the decision when the cost of collection exceeds a specific value.

Whatever the time frame, unless you have a highly efficient in-house collection department, there will inevitably come a time when you have exhausted all other avenues and must either write a debt off or give it to an expert to pursue on your behalf.

Should you get to this point and consider hiring a debt collection service, there are 10 questions you should ask potential candidates that will ensure you choose the one that is the best fit for your needs.

 

Question 1

How does your fee structure work? Are there any upfront fees?

While some collection agencies may ask for a retainer, other agencies offer a ‘no collection, no fee’ structure, so this should be your first criteria for selection.

As for the fee structure, most agencies use some form of tiered system, based on the amount and age of the debt, as well as the type of collection required. Your ability to negotiate a lower fee will depend largely on the size and nature of your debt portfolio.

Question 2

What sort of clients do you work for?

There are two main specialities in debt collection: those agencies who deal with consumer debt and those who specialise in business debt (Business-to-Business, or B2B). The skills and collection methods are different between the two specialities, so it’s important you have an agency that matches your needs.

If your portfolio is made up of mostly unpaid consumer bills, then you should opt for a collection agency that specialises in this area. Alternatively, if your debts are mostly related to trading with other businesses, you will need a B2B specialist. Some agencies will specialise in both, but make sure to check references.

Question 3

What specific standards of integrity define your business? Are you a member of any national or international associations?

The way a debt collection agency acts on your behalf will determine how your business is perceived. Therefore, if you wish to continue trading with those customers who may be late in paying their debts, maintaining a good reputation is vital. If an agency belongs to a Debt Collectors Association or other official industry body where ethical behaviour is required for membership, then you can be more confident they will act with integrity on your behalf.

Question 4

What technological advantages do you provide?

Technology has given the debt collection industry some powerful tools for accessing information not readily available to others. If an agency uses such technology in their collection processes, you can realistically expect their turnaround times to be faster and recovery rates to be higher.

Question 5

What legal protections can you offer?

Knowing what kind of accounting practices a collection agency employs will give you an indication of whether they are safe to deal with. Monies owed to clients from recoveries should be kept in separate trust accounts, so that they are unaffected by the fortunes of the agency.

If the agency is licensed and accredited, then these kinds of practices will usually be standard, along with adhering to laws relating to privacy and information gathering, and having appropriate insurance coverage.

Question 6

What are your remittance policies?

A debt collection agency can claim to have the fastest turnaround and highest recovery rate in the industry; however that is of little use if the money is not being forwarded on to you with the same efficiency. Unless a collection agency passes on recovered monies in a timely fashion, you could end up waiting as long for payment as you would originally have waited for the clients to pay their debts in the first place.

Question 7

What are your reporting capabilities?

If you have a large portfolio of unpaid bills, finding a collection agency that reports to you in a timely manner is crucial. This can be in the form of regular reports from collectors or, as is becoming more common these days, via a website where information relating to  your account is regularly updated.

Question 8

What is your experience in the debt collection industry?

It is important to know whether an agency is qualified to manage your account. There are several ways to find out how much experience an agency really has. As well as asking for information such as industry memberships, licensing and collector certification, you should also ask for references from other businesses that have used their services. Don’t be shy asking for these, as successful agencies will be happy to supply them.

Question 9

What if you are not able to recover my debt?

If you were given the right answer to question one, then you will at least not be out of pocket for the recovery process if the debt cannot be collected. But, if your debt is a substantial amount that you simply cannot afford to write off, then legal action may be your only recourse. In that case, it’s important to know ahead of time that a collection agency has access to reputable, affordable legal representation and that, once initiated, the agency will continue to be your primary means of contact during the process.

Question 10

What methods do you use to recover my debt?

Knowing that a collection agency will always act ethically and responsibly on your behalf is important, not only to protect your reputation and customer relationships, but also to protect you from possible legal implications. The agency should be able to report to you that the methods they use in collecting debts are in accordance with all relevant legislative requirements and industry codes of practice.

For Professional Debt Recovery in Kenya and East Africa …Please contact

Debt Recovery Associates. Persuasive, Persistence, Professionalism

Town Office-View Park Towers ,10th Fl ,Utalii Lane /
L584-off UN Avenue, Gigiri.

P O Box 27859 00100 Nairobi, Kenya

Tel +254-20-221 1382/362

Cell: +254 721 636 404

Fax +254-20-2211386

Email; debtrecovery@dolphinsgroup.co.ke

http://www.dolphinsgroup.co.ke/debtrecovery/index.php