Saturday 9 November 2013

A Credit R.I.P. – It’s Not What You Think It Is…




Here’s a simply strategy to clean up those year-end slow-payers before the holidays.

In this issue we will discuss the costs and benefits of having a solid plan of attack for your slow-paying accounts.

Cash flow is the lifeblood of any business. Without it your company will have a financial heart attack. Therefore it makes good sense to have a consistent strategy for collecting your receivables. And while large businesses generally have a consistent approach when managing their receivables, many small and medium sized businesses do not.

The owners of small and medium sized business are usually pretty close to their customers. This can be both good and bad. Good if the relationship is respected bad if your “friend” uses it to take advantage of you.

So What’s a R.I.P?

A R.I.P. is defined by Brad Hams of the book “Ownership Thinking” as a Rapid Improvement Plan for the financial health of your business. He calls missed opportunities “cracks in the table” where your profits can fall. A R.I.P. is an initiative that you and your staff can implement easily to improve your business right now as well as creating a fun activity in which all of your staff can participate. An example of a year-end receivable clean up R.I.P. might look like this:

ACTIONS:

1.      Produce clear, accurate, and timely invoices
2.      Ask for deposits and/or progress payments
3.      Implement a seven day customer service call (seven days after performing your work and invoicing the job, your customer service dept. will call the client and ensure they are happy with your work and inquire if there are concerns about the invoice) This is looked upon by your customer as a pro-active service call, yet provides you with the ability to discover or eliminate potential excuses for non-payment of the invoice.
4.      Complete credit approvals BEFORE the order is processed
5.      Create and send (by email) monthly statements to customers
6.      Have the sales team keep track of past due invoices and report on these at a weekly management huddle, after which the next action would be determined.
7.      Customers that are past due 91 days and longer to be sent to a professional collector with the view to collecting the funds and retaining the customer.

Key Concepts

a)      A R.I.P is a tool to engage all employees in improving the performance of one Key Performance Indicator at a time.
b)      R.I.P’s shouldn’t be difficult to design and can be created in just a few hours
c)      Non-management people should be involved in the design of a R.I.P.
d)      Your organization should have at least one R.I.P in process at all times
According to the author of Ownership Thinking, Brad Hams, R.I.P’s are powerful tools for a number of reasons aside from profit enhancement. They also identify process improvements

Friday 25 October 2013

The Non-Payment Trifecta



Over the 29 years I’ve spent in the accounts receivable management industry, the vast majority of reasons a creditor experiences a slow-paying customer boils down to one of three issues: They are:

1.       Sticker Shock/Dispute

Take for example an I.T. company that is contracted to install a new software application. Only after the installation does the software company realize that the customers network is not configured correctly, requiring the customer to either abandon the purchase or upgrade some hardware. Either decision will cost the customer money they hadn’t expected. The same scenario plays out all over North America each day and affects every industry. Therefore it is absolutely vital that creditors work very hard to manage expectations early in the relationship.

2.       Invoice Inconsistencies

Many large customers are now automating their accounts payable systems to save themselves money through the outsourcing of this back office function. These automated systems are all different requiring suppliers to become subject matter experts on their customer’s payable systems! If your invoice isn’t coded correctly or doesn’t contain certain signatures or purchase order numbers, the customer doesn’t call you to ask for help. They simply leave you to figure that out for yourself. This process causes payment delays to your invoice. And once your invoice is received correctly then the customer takes another 30 days to pay.

3.       Simple Pressure Required

The third involves a customer who is initially delaying paying your invoice due to a cash flow problem. This customer knows that trade credit is much easier to get than bank credit, so he uses his suppliers as his bank. Often a polite but firm telephone call is all that is required to receive your payment; however this customer’s financial situation may be more precarious than even he anticipates. In this case the creditor who acts first – gets paid and those who wait – don’t.

More and more companies are embracing the idea of outsourcing their credit and accounts receivable management functions rather than maintaining staff, lease space, technology, and training on their own. Should you consider outsourcing your credit and accounts receivable functions – it is vital that your provider clearly understands the above-noted concepts and can skillfully navigate their way to obtaining payment and serving your customer or help you to quickly identify a problem customer and guide you to consider the appropriate actions before it is too late.

About The Author: Brad Lohner is a 29 year veteran in the accounts receivable management industry in North America. He owns Credit Process Advisors, a credit and collections consulting company, as well as two commercial debt collection agencies in the USA and Canada, along with Lien-Pro® Canada’s only construction lien filing firm.

Saturday 19 October 2013

The Disturbing Surprise in Canada for U.S. Creditors

With the economic climate here in the U.S., many companies have expanded to Canada and now carry Canadian receivables. Like the U.S. states, different provinces and territories have different time limits on when a creditor may sue.

We received an email regarding a disturbing trend from our Canadian agent and if you have receivables in Canada, it is worth a read. We have taken excerpts from the email and edited where applicable.

The Disturbing Trend

Being one of the largest commercial collection agency operations in Canada, we receive a LOT of large balance commercial accounts forwarded to us from U.S. collection agencies and miscellaneous U.S. Clients.  Recently, one of our seasoned collectors drew our attention to a disturbing trend that keeps resurfacing and is surprising U.S. creditors.

He showed us two large balance commercial accounts against limited debtor companies in the provinces of Ontario and British Columbia.  In both cases our instructions were to secure immediate payment or sue. Both accounts were two and a half years old and the Client was frustrated with the stalling. After a bit of research and a few phone calls it was determined that both debtor companies were out of business. However, the Client had personal guarantees on both accounts.

When confronted with their personal guarantees, it became obvious that all the guarantors on both accounts had absolutely no intention of paying voluntarily. Research indicated that the guarantors easily had the personal assets and funds to pay. Like the U.S., commercial debtors know the legal system more than retail debtors and are quick to exploit a loophole.

Here in Canada, legal costs are far lower up here than in the US. Also, there are far fewer legal stall mechanisms for debtors. In addition, there are some fantastic legal tools available in Canada.

The Surprise

The last payment on the Ontario account was just over 2 years prior. However, the province of Ontario has a 2 year limit on commencing legal action. Our Client was stunned.   What this means, is you can report the debt to a credit bureau, which will stay on the debtor’s credit report for 6 years. BUT, if you haven’t commenced legal action within 2 years from the date of last payment then you no longer have any legal recourse. The debtors stalled the Client past the 2 year limit and without litigation, they would never pay. 

Fortunately for our Client, the British Columbia account didn’t have the same problem as Ontario. A British Columbia 2 year limit for legal action became effective on June 1, 2013. Debts incurred after June 1 are subject to the 2 year limit. However, the Client account was grandfathered or prior to June 1, so the statute of limitations was still 6 years.

The Good and the Bad

The Ontario account was a write off, but the results on the British Columbia account were successful. We ended up recovering our Client’s receivable, after we pre-garnisheed half the balance from the guarantor’s bank accounts and the guarantors decided to pay in full. Like I mentioned above, Canada has some very effective legal maneuvers when you know what you are doing.

Legal action is sometimes the best option in the case of large balance commercial accounts. However, the decision to sue must be made prior to the limits on commencing debt litigation set by the province the debtor is located in.

When it comes to debt in Canada, the province or territory where a debtor is located in determines the time period or time limit for commencing legal action. It must also be kept in mind should a guarantor live in a different province then a different time limit may apply.  

The Clock is Ticking

The best advice we can give your Clients is to be aware of provincial limitations. As a courtesy, we have included a map of the debt litigation limits across Canada. You may want to distribute this reference map to your Clients with Canadian portfolios.
Beware of the stall game. While a creditor may not know the time limits, the odds are the debtor sure does. In the case of the Ontario account mentioned above, the guarantors used every stall tactic until they knew the creditor couldn’t sue.

Creditors must be careful when dealing with the statute of limitations regarding debts at the Federal (6 Years) or Provincial Government level. These exceptions include student loans, child support, taxes and alimony. Should you have any questions please let us know.


We would like to thank PCR for their email, as this information is sure to save a lot of money for some of our Clients.