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Effective Credit Control for Business

Good debt management - our experiences and systems

As recruitment consultants, we have spent eight years trying to work out ways to get our clients to pay our invoices in good time, thus ensuring a decent cash flow for our company, but also ensuring that our terms and conditions are adhered to which then benefit the clients as they get generous rebate periods considerations if anything was to go wrong with a placement.

In the eight years that the company has been operating, I estimate that on three separate occasions we have had to send bailiffs into firms, and on at least ten occasions we have had to issue proceedings either in the county court or using the small claims procedure.

We have tried a whole raft of measures over the years with law firms to get payments made in good time, and this has become the following procedure:

When we issue an invoice, we ask the firm to choose their charity for our charitable donation (Ten Percent donates ten percent of annual profits to a charitable trust which subsequently distributes the money to various charities).

We also point out the benefit of payment within the period stipulated in the contract as a firm is then able to take the benefit of our rebate periods.

We issue a statement exactly 14 days after a candidate has joined a firm reminding the firm that payment is due within the 21 days to take the benefit of the rebate.

We issue another statement exactly 28 days after the invoice has been issued and the candidate has started work advising that the money is payable.

We issue a final letter requiring payment after exactly six weeks of the date of the invoice and after the candidate has joined the firm.

We send a credit control letter advising that interest and costs have been added in accordance with the statutory position (Late Payment of Commercial Debts Act 1998) setting out a timetable for action which involves giving the date the matter will be passed to external solicitors for them to recover the outstanding debt.

This final step takes place seven days after that letter and without further ado we send the debt off to our external solicitors (if not small claims court level) and ask them to proceed for us.

We provide the external solicitor with the full case, including all the evidence required to issue proceedings so they can speed up the process and have a brief discussion with our solicitor as to whether a statutory demand issued and bankruptcy proceedings taken or whether we issue proceedings in the county court or using the small claims track.

We sit back and let the external solicitors deal with the matter and see how long it takes us to get the money out of our clients!

The worst case to date was a central London firm who ignored everything sent to them including telephone calls, emails, faxes and letters, right up until a statutory demand was issued and bankruptcy proceedings started, at which point they disputed the contract, and we ended up in the country court approximately two years after the original invoice had been issued.

The firm eventually agreed to a consent order to pay the outstanding invoice plus all costs, by which time the costs were almost the same as invoice, and even then failed to pay within the time stipulated in the consent order.

We recovered our money from them, approximately two weeks later I noticed in the Law Society Gazette that the firm had closed down, we had been just in time with our proceedings.

I recall as a solicitor in pratice that a lot of firms are very poor at collecting outstanding debt especially from clients where they think there is the potential of further work and are worried about upsetting them. I think this then passes onto the solicitors' suppliers, as the solicitors think that their suppliers consider things in the same way.

My take on this is very different. Many years ago I worked for a small company in Leicester, with a senior partner who was a very good businessman and gave me two pieces of advice when I left the company. The first one was that a bird in the hand is worth infinitely more in the bush, and that one should never allow discounts or a lack of payment on the basis of future work promised. I have stuck rigidly to this in my time in business and have found time and again that when I have had to take action against firms to get payment, they have come back to me as clients regardless of how long it has taken to get the money out of them.

It’s a very interesting phenomenon because some of these firms have had the full works taken against them including court action, yet they almost respect this and come back to us to use the service again as they can see that not only are we good recruiters, we are cost efficient, fair and run a tight ship.

In summary, when dealing with debt collection, I would apply the same rule to all my clients uniformly, regardless of whether they are going to be good, poor or indifferent clients over the years, although important with any particularly good clients to ensure that you do not upset the apple cart too much when requiring payment! We have sued one of the largest public sector servicing companies in our time however...

Jonathan Fagan is MD and a recruitment consultant with Ten-Percent Legal Recruitment. cv@ten-percent.co.uk or 0207 127 4343. www.ten-percent.co.uk

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