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DEBTS THE WAY TO DO IT
Page 62
Page 63
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Every operator dreads the customer who can't, or won't, pay up.
So what can you do to extract what you're
owed? David Harris
has been finding out.
Nobody who works in UK haulage needs reminding that bad debts are bad for business In an industry where profit margins are considered very good if they hit 5%, had debts are particularly grim news.
Hauliers are more vulnerable than businessmen in many other sectors because most of their costs need to be paid straightaway, says David Pink, managing director of Kent-based haulier the Dodd's Group.
"Everything we pay for is up-front, including fuel and wages, our two biggest costs," he points out."It's not like manufacturing where they can get 60 days' credit on raw materials We have to wait 30 days to get paid."
Dodd's has had some had debts in the past, including one of 1:160,(XX) from a single customer two years ago, but Pink has tightened up the group's credit control systems to make this less likely — and he now meets with his credit controller every Monday morning.
Some can't some won't
There are two types of had debtors: those who won't pay and those who can't. From the creditor's point of view neither is desirable. Morally, those who refuse to pay or delay payment are probably more unpleasant than those who can't pay because their own business is having problems.However, from a commercial point of view hauliers are better off dealing with someone who is delaying payment, because eventually the money might come through. Better late than never...
In either case, the problem is how to collect it efficiently without upsetting customers and losing future business.
Collecting debt is an art rather than a science, says Roger Nolan. finance director at the Freight Transport Association (FTA). Nothing shows this more than the gap between your legal rights over debts and the commercial reality of collecting them.Take charging interest, for example. Under the Late Payment of Commercial Debts (Interest) Act 1998 you have a legal right to charge interest on late payments but that doesn't mean it happens very often.
"Yes. you can collect interest on a debt," says Nolan."But what do you do if you issue an invoice with interest added and the customer pays the original amount without interest? You could sue them, but is it worth it? It would be an action that \\ as essentially hollow, which is why it doesn't happen very much."
Taking debtors to court can be a useful step in some circumstances, but it usually means the relationship between haulier and customer has broken down irretrievably. If you hope to continue working for someone, you probably won't be taking them to court,says Nolan.
Much better than ending up having to take legal action is to make sure you get paid in the first place. And the good news is that there are some simple things you can do which many firms neglect.
First, make sure you confirm your credit terms in writing with your customers.A recent survey by the government-backed Better Payment Practice Group (BPPG ) found that of 280 responden is, 32% admitted they did not send out wriffen credit terms. Medium-sized businesses (50-250 staff) were the worst offenders, with 43% not doing so: while small businesses (10-49 staff) were much better, with 80`)/0 sending out credit terms. Another piece of advice which falls under the 'obvious, but often ignored' category is to invoice prom ptly.Another internet poll by the BPPG, answered by 341 firms in all industries. found that 11% waited two weeks to invoice and 19% waited until the end of each month.
Small is beautiful
Again, small firms had the best record, with 52% of those with 10-49 staff invoicing within 24 hours of completing a job.This is much the best thing to do, saysiames Meyrick, small business policy adviser for the Association of Chartered Certified Accountants.
"The invoice is the first part of the collection process and it is essential that it is sent out as soon as possible after confirmation of receipt of goods or services— preferably within 24 hours," he says" By not invoicing promptly, businesses are leaving themselves open to abuse from late payment."
Even before doing business with a customer it is possible to assess whether it is sensible to trade with them Credit check companies can give reports on prospective customers and send updates as soon as financial reports are filed with Companies I louse. But Philip King,director general of the Institute of Credit Management, says even casual checks are worthwhile.
"In a business like haulage it is quite likely that firms will know other companies that work for the same customer," he points out. "It's always worth ringing them up and asking what they are like to deal with. Don't underrate references." • CONTACT The Better Payment Practice Group, www. pay onti me . co. uk