Best Wishes for Whichever Holiday you are Keeping Now...

...and please don't forget that this is the Season for giving - and that some creatures give ALL the time.

Animals help people to see and hear.

Animals are good companions to people who have no other companions, and no access to the sort of communication that you are enjoying at this moment.

Don't forget them. A couple of quid from you can mean life for an animal - and perhaps a better and happier life for an animal AND a human being.

There are a lot of animal charities. I support the National Animal Welfare Welfare Trust because it's a small charity and I like its ethics and what it has achieved over the years, but if you want something more global, you might want to look at
The International Fund for Animal Welfare . Or you might want to get involved in something closer to home.

The important thing is that you DO get involved, somehow, somewhere, because - one day - you, or someone close to you, might need an animal to be eyes, or ears, or a friend.

Please give as generously as you can to an animal charity. The charities need the money - and people need the animals.

The Banks Are Not Always The Villains Of The Piece

I met a man waiting for a train a couple of days ago. I’d seen him before – same place, same time - and somehow we fell to talking about the rise in company insolvency all the way from Lille to London.

My companion was adamant in blaming the banks – and, of course, the record drop in lending - for all of the problems that are besetting business today and driving so many companies into liquidation.

I have to say that I agreed with him in many essentials; it is very difficult to get finance and - at rates often well above Bank of England base rate - it is far too expensive for many large companies (let alone SMEs!) to accept financing at such rates even when it’s offered.

However, the fact is that there is more than one reason for finding oneself short of cash, and it isn’t always down to the fact that one can’t borrow it cheaply, or at all.

I tend to use the long journey from Chinon to London to play catch-up with trade papers and journals that I've not had time to read properly. I'd been playing catch-up that morning with the November issue of the Journal of the Institute of Credit Management and - along with various other things - I'd found a very small article on page 13 written by David Squibb, the Regional Trade Director for Lloyds TSB Corporate Markets.

In his article Mr Squibb related a story about a business with a £30 million turnover that had approached his bank with an unprecedented request to borrow moneys in order to pay its staff. The bank naturally made enquiries, and discovered that the company’s credit controller had gone on maternity leave, and that no steps had been taken to replace her. There was therefore no-one on hand to follow up on invoicing or collecting - and so the cash dried up.

I found the article, and passed the journal over to my sometimes fellow traveller.

The good news is that he’s probably still thinking about it. The bad news is that he managed to disappear into the bowels of St. Pancreas with my copy of ‘Credit Management’.

If you want a free sample copy of Credit Management, you can e-mail Meg Cox at the ICM, and she will send you one. In the meantime: please remember that it isn't just charity that begins at home...

Are you a Sage Line 50 or Sage 200 User? Free Offer Worth £500 From CreditPal!

Last Saturday I was talking about CreditPal. If you haven’t read that post, CreditPal is a free on-line service that – if you’re an SME - could enable your Company to get the financing or credit insurance it wants or needs to survive and/or grow. I referred to it at the time as ‘a free lunch’. I also mentioned in that post that there was an upgrade available – CreditPal Plus – which does what upgrades always do: gives subscribers more and better.

CreditPal is a service provided by Future Route and Graydon, and today I received a very pleasant – and, indeed, very welcome - e-mail from Chris Poll, who is the Chief Executive Officer of Future Route. I think it proper to copy it out here in full:

Geoffrey you are correct - it is a free lunch.

I am also prepared to offer the first 10 SMEs who have Sage Line 50 or Sage 200 accounting systems who upload their data for a free Graydon credit review on CreditPal a free CreditPal Plus for the next 12 months - and that is worth £500 for each SME business. So enjoy the desert, coffee and liquors as well. Xmas comes early this year - just email me - I am the CEO of Future Route that supplies CreditPal. mailto:Chris.Poll@Future-Route.com.

I think that this is a very timely and very generous offer. I also think that you would have to turn over an awful lot of rocks to find anyone else prepared to make such an offer, and that you should try to take advantage of it.

You can find out more about CreditPal and what Chris is offering by going to CreditPal or by contacting him by e-mail at the above address or by using any of the following alternative means:

m UK +44 (0) 777 0755 662
m Italy +39 3891 022408
Skype ID : chrisgpoll
EA : Nora Sharples
t +44 (0) 844 375 9070
f +44 (0) 844 375 9072
a Enterprise House, 1-2 Hatfields, London, SE1 9PG, UK.

Incidentally: the software is accredited by The Institute of Chartered Accountants in England and Wales under the terms of its Accreditation Scheme. No problems there!

Sign up to the Prompt Payment Code - Your Voice Matters

I've talked about large customers and late payment many times over the past few months. Back in May I remarked that this behaviour is a form of commercial blackmail, and added that it's usually accompanied by the unspoken threat that the customer will delist the supplier and take its business elsewhere if the supplier doesn't knuckle down and accept the situation.

The Prompt Payment Code won't give any SME an instant way out of this situation - but it's worthwhile taking the time to sign up to the Code because - in the last analysis - public opinion carries weight and is capable of changing the moral climate.

Signing up to the Code is simple. Here's what you will need to agree to:

• Paying your suppliers on time within the terms agreed at the outset of the contract without attempting to change payment terms retrospectively and without changing practice on length of payment for smaller companies on unreasonable grounds.
• Giving clear guidance to your suppliers.
• Providing your suppliers with clear and easily accessible guidance on payment procedures, and ensuring there is a system for dealing with complaints and disputes which is communicated to them.
• Advising your suppliers promptly if there is any reason why an invoice will not be paid to the agreed terms.
• Encouraging good practice by requesting that lead suppliers encourage adoption of the Code throughout their own supply chains.

You will be asked to supply two references to prove that your own Company pays its suppliers promptly, and you will notice that there is a Data Protection Notice at the bottom of the application form which states:

Institute of Credit Management (Services) Limited and its group companies will use your information including without limitation your personal information ("Information") for the purpose of registering your organisation as an approved signatory to the Prompt Payment Code. We may need to disclose your Information to our service providers and agents for these purposes.

By submitting your application to become an approved signatory to the Prompt Payment Code you consent to the display of your organisation name and postcode (which may include your personal information if you are a sole trader, partnership or other unincorporated organisation) on this website which may be viewed by anyone accessing or visiting this website. In addition by submitting your application you consent to the sharing of your Information with the Department for Business Enterprise and Regulatory Reform (BERR).

Don't be afraid of that - think of it as free (and potentially very advantageous!) advertising - and don't be concerned that your Company is very small in comparison with those organisations that are advertised as having signed up already.

Your voice, and your vote, and your participation in the Code and what it stands for and is trying to achieve, matters a lot. You can only encourage other people to adopt the Code if you first adopt it yourself and make it obvious that you have done so.

If it makes any difference to your thinking about the validity and usefulness of the Code: the Forum of Private Business is targeting the public sector at the moment. It intends to 'name and shame' those with poor payment practices, and highlight the work of those Councils and Health Trusts that do pay their suppliers on time. The FPB has submitted a series of Freedom of Information Act requests to every single Council and Health Trust in Britain (all 700 odd of them) asking how long they take to pay their suppliers (many of whom are small businesses).

CreditPal - Take Advantage, It's Free

When I wrote 'Help Yourself - It's Free!' yesterday, I got some very cynical comments from various sources on Facebook and Linked in. "There's no such thing as a free lunch" just about sums them up.

The point is that, these days, there is a lot of free information and help around for SME's - and CreditPal is a free on-line service that's really worth looking at if your are running a small or medium-sized business. CreditPal costs nothing - and using it could get your Company the financing or credit insurance it wants or needs.

You can find out more about CreditPal by going to http://www.creditpal-online.com/why-use-creditpal. You'll find a brochure in pdf format that explains how the system works.

What particularly struck me when I began to read the brochure was one of the headings. It was right at the beginning, and it read: CreditPal enables you to access the best credit and finance for your business. I liked that. I also liked the fact that CreditPal seems to be providing a learning environment.

There is, of course, an 'upgrade' - there's always an 'upgrade'. But you don't have to go for the 'upgrade' right away. Take the free lunch! Once you've worked your way through the starters and the main course, you might want to consider paying for the dessert.

Help Yourself - It's Free!

The The Institute of Credit Management has created a series of guides designed to keep the cash flowing. Subjects include:

• Knowing your Customer
• Payment Terms
• Invoicing
• Treating Suppliers Fairly
• Credit Insurance
• Factoring and Financing
• Chasing Payment
• When Cash Runs Short
• When All Else Fails
• When Your Customer Goes Bust

You can find the guides at www.businesslink.gov.uk/creditcrunch section and at www.creditmanagement.org.uk/managingcashflowguide.htm.

New Credit Control Software for SMEs

Credit Guardian is a business credit-checking software that merges real-life accounts data with credit risk information from Experian. It has been launch by Draycir, a credit control software provider, and is intended to help smaller businesses make more informed decisions and minimise the risk of bad debt and late payment.

Credit Guardian links directly into a company’s own accounting system and merges accounts data with credit data downloaded in real time. Companies are therefore able to get a live insight into their business and trading status displayed within their existing accounting system.

For more information visit Draycir Limited.

Third Party Collection Fees - You Only Get What You Pay For

Collection agencies (and Solicitors) sometimes offer very inexpensive rates, special discounts, a 99p letter, or a 'no collection, no fee' service.

'No collection, no fee' is a dangerous option for obvious reasons. Reputable debt collection agencies usually make charges on a commission basis. Commission isn't as expensive as it used to be - but it can still amount to quite a chunk of your debt, particularly for overseas collection.

Reputable Solicitors usually have a standard scale of charges. Many of them hope to recoup all or a proportion of their fees from the interest that has accrued on the debt, and the costs that are awarded automatically whenever proceedings are issued.

Either way, you will only get what you pay for - and cheap is never a really cheap option.

It's a Two-Way Street

Your company has a right to expect good service from a collection agency - but an agency has a right to expect certain things of you, too.

The main things an agency wants from a client is that cases be passed over sooner rather than later, that the client liaises with agency personnel fully and responds to queries and correspondence and requests for copy invoices and statements quickly, and that a decision-maker is readily available and prepared to be flexible about payment plans and settlement offers.

Obviously, an agency is also going to want your Company to complete any instruction form, letter or agreement in order to enable it to take action, a provide a precise definition of the action required in each case, and prompt settlement of its accounts – but it’s really the factors set out in the first paragraph of this post that will determine the success or failure of the relationship.

Nobody enjoys trying to collect debts that have been gathering dust for months. Such debts may not be uncollectible, but they are likely to be much more difficult and time-consuming (and more expensive) to deal with than a ‘fresh’ debt would be.

No collection agent enjoys having to wait on a creditor to provide essential information when a debtor is waiting on him or her to come back with it.

And no one enjoys dealing with a client who is hard to get hold of and unwilling to accept reality in the form of reasonable payment plans and offers of settlement which are effectively offers of part-payment.

What Can You Expect from Collection Agents

Services offered by individual collection agencies will obviously differ, but there are many common factors as to the services that you might expect to receive from any reputable agency that you employ:

• Collection by series of letters and/or telephone calls.
• Collection by a by a door-to-door collection team.
• Regular updates on the position of each case. This may be accessible on-line in some cases.
• Flexibility as to receipt of payments. It should be possible for payment to be made direct to you, rather than direct to the agency.
• A good litigation service via a reputable firm of Solicitors when necessary.

In addition, you should expect to receive:

• Maximum results from collection action.
• The speedy resolution of customer complaints via effective liaison with your company.
• A sympathetic and conciliatory approach toward honest defaulters.

The latter point is, of course, extremely important. As I think I have said many times before - bad times tend to get better, and memories tend to be very long, and it's therefore as well to remember that today's 'honestly defaulting company' may well turn out to be as good a customer in the future as it was in the past.

The safest way to go is therefore to use collection agencies judiciously if you are going to use them at all. Will the best will in the world, the very best of agencies could never know or understand your customers as well as you do, and could not evaluate long-standing relationships as well as you could yourself.

Even If You Think You Have Found a Jewel...

… and the collection agency has all the right credentials (including, of course, a Consumer Credit Licence!) you still need to make sure that the agency and its collection methods are right for your company - and that its personnel are right for you. You are going to be liaising with those people regularly, and that isn’t going to work well if you rub each other up the wrong way from the get-go.

Before you make a final decision, arrange to visit the agency's premises and meet everyone – more than once if possible. During your visits ask about working methods and principles – and watch and listen carefully to what’s going on around you. Make a point of asking which Solicitors the agency uses for litigation purposes – and check later to find out whether those Solicitors specialise in debt collection and have a good reputation in the field.

At that point, of course, you might want to approach those Solicitors direct, and go through the same process with them - visit, and find out about the people and what the firm has to offer. After that, of course, you'll be in a good position to compare people, services and prices, and make an informed decision as to who and what will serve you best.

How do You Find a Jewel in a Tarnished Crown?

Personal recommendation obviously means a lot when you need to find a good debt collection agency – and that’s particularly the case if the recommending party has been using the agency for some time, because some agencies begin well, perform brilliantly for six months or so, and then ‘go off’ as it were. Fortunately, that doesn’t happen too often these days: the collection business was always very competitive, and the ‘crunch’ has ensured that poor performance isn’t an option.

In the absence of personal recommendation, it’s worth noting that reputatable agents tend to be members of the CCTA and/or the Credit Services Association (CSA). In most cases any member of the CSA will have been vetted, might have sat a written or taken an oral examination, and would have agreed to abide by the Association’s Code of Practice, which is endorsed by the Office of Fair Trading. In addition, such an agent would usually have to have been in business for some time, and would need to give an annual assurance of solvency.

Some agencies are moving toward providing greater support of credit control teams at an earlier stage in the collection process - intervening before an overdue payment has actually become 'a debt', helping with pre-due calls, and checking invoice details at busy times of the year - and it will be interesting to see where that goes.

In the meantime, if you want to use an agent, getting a list from the CSA would be a good place to start.

Collection Agencies Have a Couple of Difficult Hills to Climb

Collection agencies can be very useful in some circumstances and the credit industry does, on the whole, recognise that fact. However, there is no doubt that debt collection agencies have a long-standing and difficult reputation to live down - and recent adverse publicity relating to consumer collections hasn't helped at all, despite the fact that quite a lot of consumer debt is taken care of 'in-house' by, for example, banking organisations, rather than regular (and more strictly regulated!)collection agencies.

Quite apart from that, of course, some credit managers prefer to use a firm of Solicitors rather than a debt collection agency.

One theory being punted about at the moment is that collection agency personnel are better trained to deal with debt collection than Solicitors are - that they have more appropriate telephone and negotiating skills, are better equipped to trace defaulters, and can arrange 'doorstep collection'. I personally don't agree that that is the case. Solicitors specialising in debt collection have all the appropriate skills and all the appropriate computer software to do an excellent job - and they don't have a 'difficult reputation' to overcome. Furthermore, collections sent to agencies very often end up with Solicitors in any event - which often means that, effectively, the client pays more than he might have done had he gone to a Solicitor in the first instance.

Third Party Collection

I'm afraid 'tomorrow' has been a long time coming on this one! I had to go to London - and then I had to get back, which is not always quite as easy as it looks on paper. And, of course, having got back, I found a pile of paper!

Getting back to using debt collection agencies - using a third party can, of course, be a very powerful psychological tool. A lot of defaulting debtors don't like the idea that a third party will be aware of the state of their account and believe - quite rightly these days - that it could adversely affect their credit rating.

The downside is that using an agency to deal with defaulting debtors means that you can lose control over those accounts unless you set up a foolproof system of liaison between the agency and your own credit control department.

And, of course, you need to carefully vet any agency with whom you propose to do business.

More SMEs Are Using Collection Agencies

Which is no surprise, I suppose. It is, though, disappointing to me personally that SME’s are not trying harder to negotiate and resolve problems without recourse to third parties.

Debt Collection Agencies obviously have a purpose – they wouldn’t exist if they did not. Obviously, too, there has to be an end to the line somewhere when it comes to truly recalcitrant non-paying customers. However, dividing the recalcitrant from the willing but temporarily unable is the task of the supplier – you, actually! - and it’s very important indeed both to you and to your business that you differentiate between the truly recalcitrant and the willing but temporarily unable to pay before you employ a collection agency.

‘Spray-hitting’ – sending all overdue accounts out for collection by a Debt Collection Agency – can look like a great option when your cash flow situation is so wretched that you have to worry about where the next wage bill is going to come from - but it’s still a very, very, bad idea indeed.

I remarked many months ago that successful debt collection has never been about aggressive or confrontational behaviour. Unfortunately, debt collection agencies can be both aggressive and confrontational – and very destructive of commercial relationships.

One or two poorly managed or overly aggressive telephone calls from ‘stranger’ agency personnel can destroy all the work you have put in to building a good relationship with a customer - and send the possibility of friendly negotiation (and future trading!) straight out of the window.

And - as I have said before - times will get better, and people have long memories.

You may indeed think at the moment that you ‘need’ to employ a collection agency to solve your problems, but I believe that you need to consider all your options very carefully before you do that - and I have, after all, been in the business of collecting other people's money for more than fifty years now.

The fact is that circumstances alter cases - and at the moment the circumstances are not just unusual but unprecedented. We all have to adjust to that.

I’ll be talking about choosing and using agencies tomorrow. In the meantime, though, if you’re thinking of going down the agency route, you might want to spend some time dividing the sheep from the wolves on your ledger.

How Do You Look to Lenders & Suppliers?

If you get a copy of your personal and business credit reports from a credit reference agency, you will be able to see how you look to lenders, suppliers and, of course, prospective or established customers.

It's vital to focus on maintaining a good credit rating, to understand the different criteria that are used to construct a good credit rating , and also to be aware of what you need to do to improve your credit rating.

In an earlier post I mentioned that Commercial credit agency Graydon UK and business data specialist Validis were launching a new credit information service for SME's this summer. The new service allows SME's to exercise greater control over the information provided by credit reference agencies to prospective creditors, and will improve their access to finance and credit insurance cover. Information provided to prospective creditors/commercial lenders under the new service will be based on reliable, detailed up-to-date financial data including validated monthly management accounts. You might want to think about using the service.

In the meantime, please remember to monitor your registered company information regularly. Companies House is legally bound to accept any information sent to it at face value - which means that it's easy to change Company documentation. Corporate ID fraud is here to stay for a while. Don't become a victim. Cutting back on basic processes, disciplines and checks that would normally be part of your normal business activity is false economy.

Managing Risk - Information is Power

Avoiding bad debt or fraud increasingly means knowing your customers and the people behind the businesses, and gathering, collating and monitoring information about prospective and established customers alike.

Data can be collected from various sources - new account opening forms, credit reference and government agencies, sales and marketing personnel, customer contact centres, draft accounts, forecasts and Credit Circles – and the information gathering process should be ongoing, so that the picture of a customer’s financial stability is always up to date.

Obviously, checking the financial status of any prospective customer – however large or however well you know the individual or business involved – with a credit reference agency before trading commences is mandatory, but all of the data that can possibly be gathered from or about prospective and existing customers alike from all available sources needs to be carefully checked and verified regularly.

• A search of Companies House records for information on Limited Companies is something that most people do as a matter of course at the start of any new commercial relationship - but few monitor their customers regularly afterwards.

• Many people never bother to check electoral rolls for information about sole traders or the owners of non-limited businesses at the start of any commercial relationship - or even think to check the roll when things begin to go wrong.

• Whilst some people check The Register of Judgments, Orders and Fines, The Individual Insolvency Register and one of the many available debtor registers before deciding to issue proceedings against defaulting debtors, few make it part of their initial or ongoing information gathering process.

Making these checks initially and on an ongoing basis makes it easier to avoid fraud and respond to changes affecting customers’ status appropriately - to change collection strategies, revise terms of payment, or (worse case scenario) close the account.

Prompt Payment - A New Moral Code?

The Government’s Prompt Payment Code focuses on three main areas: a commitment to pay suppliers on time, give clear guidance to suppliers, and encourage good practice. Many large companies have signed, or have committed to sign up to it.

Unfortunately, according to the Federation of Small Businesses, other commercial giants, including Carlberg, TNT, DHL, Compass, Bernard Matthews, Jewson and Amazon have chosen to extend their payments terms – one company is keeping its suppliers waiting for as long as four months before paying invoices, and others are charging settlement fees as a discount if accounts are paid prior to the date specified by their extended terms – in order to hold onto cash, despite the impact this will have on the cash flow of small businesses, or the increased costs those businesses will incur in respect of bank charges, overdrafts, and handling fees.

Legislation giving suppliers the right to charge interest on late payment has failed to solve the 'big-customer-small-supplier' late payment problem. Small suppliers fear to use it because they fear that the defaulting customer will find another supplier; large customers regularly refuse to pay late payment charges when they are demanded, using the often unspoken but always potent threat that they will find another supplier. I think it unlikely that the non-compulsory Code will succeed where Legislation failed.

Philip King, the Director General of The Institute of Credit Management, recently wrote that the only real answer would be a new moral code – ‘a code that says late payment is not acceptable’ – and he is, of course, quite right. Unfortunately, I doubt that we will see universal adherence to such a code any time soon. Certainly many large companies are interested in promoting their ‘corporate social responsibility’ credentials – it gives them a competitive advantage – but ‘prompt payment’ doesn’t necessarily form part of every company's CSR thinking, or appear on every CSR statement.

You can learn more about the Prompt Payment Code by visiting the Prompt Payment Code website. There is a facility on the site to raise concerns about late payers.

Cutting Down on Staff - or Cutting Off Your Nose to Spite Your Face?

Experienced credit personnel are more valuable than ever in the current climate, but many businesses are looking to cut costs by cutting down on staff, and a survey by The Institute of Credit Management has raised fears that it is smaller businesses that are primarily responsible for the highest number of redundancies where credit personnel are concerned.

I am a great believer in DIY, but frankly professional credit managers - who are, after all, responsible for keeping the cash flowing - are the last employees that anyone should think of getting rid of in order to cut costs.

Philip King, the Director General of the ICM, remarked that "It seems illogical that companies are seeking to make redundant those professionals who could be their very salvation".

He's right, of course - and if you substitute the word 'mad' for 'illogical' then you'll have my opinion in a nutshell.

The Sports & Social Club That Wasn't

The liquor trade is a highly competitive industry, and there was a time - and not so long ago either - that major breweries would give loans to almost anyone for almost anything to get their beer into an outlet, and their sign over somebody’s front door.

And it wasn’t just money that breweries were prepared to hand out against barrelage discount or any other kind of loan. Breweries would supply tables and chairs, banquettes, curtains and billiard tables as well as beer - which is how I came be to be involved with The Willow Sports & Social Club.

According to the documents that landed on my desk one unhappy morning, this apparently thriving establishment had benefited from everything a major brewery had to offer – money, furniture and beer. And then it's 'owners' had unaccountably dropped out of sight.

I called: no one answered the telephone - day or night. I wrote: no one answered my letters. There was no response to the Writ I issued, nor to the Judgment that inevitably followed. Finally, I applied for a Warrant of Execution – and by that time accrued interest had added a considerable sum to already large amounts due for the loan, the furniture, and the beer.

I have read a great many Sheriff’s Reports in my time, but I am happy to say that I have only one read one like that which related to The Willows Sports & Social Club.

The premises proved to be a Nissen Hut in the middle of a field surrounded by a chain-link fence. There was a gate – padlocked – which in due course was opened by a locksmith. There had once been a road of sorts leading to the hut, but nature had so encroached into its fabric that it was difficult to distinguish the road from the surrounding meadow. The hut itself was, of course, empty and derelict. No furniture. No curtains. No billiard table. And no cellars nor any sign of a bar…

There was never any question of what happened to the money. It went into a bank account, from which it was very swiftly removed into another bank account, from which it was very swiftly removed into another bank account, and so on, and so on, until it finally disappeared – which came as no great surprise to me.

But the fact that they were running a Sports & Social Club did come as a very great surprise to the real owners of the premises when I finally contacted them...

It was, of course, very bad credit control all the way along the line - but that isn't the point I'm trying to make here.

I did wonder at the time – and sometimes still do wonder – what went through the minds of the people who delivered the furniture, the billiard table and the beer, and whether it occurred to them that it was really rather odd that so much furniture was expected to fit into so small a space. And even odder that there were no cellars, nor any sign of a bar...

There are a lot of articles about at the moment stressing how important it is that credit and sales personnel work as a team. Delivery personnel should be part of that equation. They have eyes and ears that are just as useful (and sometimes perhaps more useful) than the eyes and ears of the sales force, but delivery personnel won’t relay information or use their initiative unless they’re trained to be and -more importantly - made to feel that they are an important part of a team, and that their input is valuable.

Don't leave your delivery personnel out of the credit control equation.

The Man With a Method

I met the Man With a Method when I was living and working in Marlborough, Wiltshire. He was what you might call 'an experienced debtor' - and he had a whole drawer to himself at the Uxbridge County Court to prove it.

The Method Man owed just about everything to just about everyone, but nobody was collecting the money they were owed - not even the utility companies (and they were all there in the drawer at Uxbridge!) - because part of Method Man's method was to lock every single creditor into expensive and long drawn out litigation by filing a Defence and Counterclaim to every single Summons and Writ he received.

I say 'expensive litigation', but the 'expensive' part of the phrase related only to his creditors. The Method Man acted for himself.

Fighting every creditor to the death - and trying to use Magna Carta to do it - was not, however, the most interesting part of Method Man's Method. His 'second string' was provoking a creditor's legal representative into hitting him within the confines of the Court, and then claiming damages for assault.

I have never really lost my temper since I beat a boy outside Ducks Toyshop in Marlborough High Street sometime in the early thirties and felt such a blind rage on the occasion that I frightened myself, but I very nearly lost it with the Method Man in the hall of the Slough County Court. And I very nearly hit him. And I couldn't be sure that I wouldn't hit him the next time we met. So I came up with what I thought was the perfect solution; I passed all the Method Man hearings over to my wife.

Method Man was a biggish sort of chap, and my wife is a smallish sort of woman. No chance, I thought, that this wretched man would be silly enough to try to goad my wife into hitting him and risk looking like a bully as well as a fool.

I was right, he wasn't prepared to take the chance. He just came up with a new Method.

Method Man followed my wife out of the Court and into the streets of Slough shouting 'Liar!' and 'Perjurer'. He pointed at her and yelled. He followed her and yelled. He screamed into her face. He tried to enlist the support of passers-by - who (perhaps best for themselves but unfortunately for my wife) weren't having any of it.

It isn't a long way from Slough County Court to the Railway Station - but it can seem like a very way if you're being followed by a raving lunatic. Halfway there, my wife had had enough. She fled into Marks and Spencer.

Marks and Spencer floorwalkers are very well trained. A small woman dressed by M&S is a customer; a big bloke shouting abuse is a problem. Method Man was removed, and so far as I know, never tried that method again - probably because it didn't work too well.

I heard afterwards from another firm of Solicitors that the Method Man had baited an Articled Clerk into belting him in the chops and was - of course - claiming damages for assault. I explained about 'the Method', and hopefully no harm was done, but I lost touch with the Method Man and his doings after that. The client threw in the towel.

If you are ever tempted to hit a debtor - remember the Method Man. It's cheaper and safer to walk away.

The Man With The Hammer

A couple of weeks ago I was talking about creditors resorting to violence and intimidation in order to collect their money - but violence can be a two-way street.

Some years ago a man armed with a hammer waited for me outside the office. I was lucky -someone saw him, warned me, and called the police - but other people have not been so fortunate. One young woman - a girl really, only sixteen years old and in her first job in a Solicitors office -went out with the Bailiffs on a repossession job 'for experience'. The occupant of the house leaned out of an upstairs window and shot her. She died.

I'm mentioning these things now because a couple of posts ago I was talking about visits to customers. I should have made it clear that whilst visits to commercial customers can be a valuable collection tool, visits to consumer debtors can be very unwise.

In the first place, a visit might be construed as harrassment. More importantly, a visit could well be the straw that broke the camels back for the debtor, who might then resort to violence.

If you have consumer debt, then my advice is that collecting it is best left to professionals who follow a code of good practice. If you are unwilling or unable to employ a professional to do the work for you, then you should make yourself aware of what constitutes 'good practice'.

The Office of Fair Trading has has issued guidance for debt collectors on how to deal fairly with debtors. The guidance is aimed at consumer credit licence holders and applicants for licences - but you can't do better than to read and follow it. You can download Debt Collection Guidance at: http://www.oft.gov.uk/advice_and_resources/resource_base/legal/cca/debt-collection.

I Was in the Area, So I Thought I'd Drop In...

It's very hard to fob somebody off if they happen to be standing on the doorstep looking as if they expect to be greeted with open arms, so unannounced visits to customers can be a very good way of getting replacements for cheques that have been 'lost in the post' or an explanation as to why the account is overdue - or coming to an arrangement for settlement.

Do go armed with chapter and verse - copies of invoices, statements, delivery notes, and promises of payment (if any).

And do be prepared to deal with complaints and queries sympathetically. Obviously, if complaints or queries relate to only one or two of the invoices outstanding, then you should press for a cheque in settlement of those that are not in issue - but don't press too hard. You can always settle for part payment of the uncontested balance, the remainder to be paid when the complaint or queries have been resolved.

Most importantly - DO do your homework! Contact all the usual sources of information before you visit a defaulting customer - whether unannounced or by appointment. The Register of Judgments, Orders and Fines, The Individual Insolvency Register, any one or more of the many available debtor registers and/or your credit agency of choice will give you a very good up-to-date overview of your customer's situation.

If your customer is having problems then you are going to have to make a decision as to whether or how you are prepared to continue to trade with them. If you can talk about those problems knowledgeably, and have a proposal ready to present when you see your customer, then you will be in a much stronger position than you would be were you to have to make those decisions immediately off the top of your head, or go away and come back with a decision later on.

The whole point of visiting defaulting customers is to come away with something tangible - full settlement, part payment, or an arrangement for payment by instalments- and something intangible that's usually called 'goodwill'.

Your defaulting customer will likely not want to lose you as a source of supply - and you may not want to lose that particular customer. And times may get better. And memories can be long...

Cups, Lips & Slips

Back again from the deadly decorators - and the deadly heatwave. The house is stone, so it's usually cool in summer - but only if you close it up during the day. As decorators don't paint well in the dark, I wasn't able to do that. Hot outside, and even hotter inside...

Anyway! Twice recently I've had clients call with problems arising from the same (alas quite common!) error. One of them invoiced a legitimate limited company before it was actually registered; the other supplied services to a company that be purported to be limited, but which didn't actually exist. The so called 'Director' of that 'company' has, of course, now vanished without trace...

In both cases, my clients relied on information given by the customer - in the latter case in writing on their own new account opening form (which shows, incidentally, a fake Company Registration number!) - but failed to check the information again Companies House records before supplying goods and services.

In both cases somebody thought that someone else had done the necessary because - again in both cases - there was no written Credit Policy in place to ensure that everyone knew exactly who was responsible to do exactly what.

Not having a written Credit Policy can cost money. In at least one of the two cases I've mentioned here, it's definitely going to cost money. If you don't have a written Credit Policy, you can write one for yourself. Essential points to cover can be found at http://www.metlissbarfield.com/systems.htm.

The 'Alternative' Reality of Ms. Bridget Prentice

Her Majesty's Court Service announced a rise in thirty types of Civil Court fees to be implemented in July.

Justice Minister Bridget Prentice believes that 'charging the true full cost for court process (including, for example, warrants and charging orders) will mean creditors consider carefully whether they are throwing good money after bad, and consider alternatives'.

Ms. Prentice has not been around as long as I have and has manifestly not 'mixed', so to speak, in the same circles, or she would not speak so lightly of people and their alternatives when it comes to money owed. I have known people - albeit not willingly - who would consider a visit from two heavies with baseball bats to be a perfectly reasonable 'alternative' to writing off a debt, however insignificant.

The only 'alternatives' available to people who quite rightly consider grievious bodily harm to be inexcusable are:

1. To come to an arrangement for settlement which may or may not be successful.
2. To issue proceedings and receive the same appalling service for much more money.
3. To bite the bullet and write off the debt.

Go for option one - and don't even think about belting somebody in the chops as payback if you have to settle for option three instead. You could end up paying for your own trial.

Lord Mandelson tells us that the Government is providing real help to business' and I agree that some Government programmes are 'providing real help'. I can't help but think, though, that affordable justice, improved services for creditors, and the appointment of a Justice Minister with some understanding of real life would provide 'real help to business' also.

Outsourcing Might Not Be A Bad Idea. And I'm Not Touting!

First of all I have to apologise for having been off-line for so long. Sadly, I haven’t been having a wonderful vacation. We have painters in the house – and I know from bitter experience that I’m allergic to the chemicals in the paint. Whilst the ladders and the pots and the blokes with the radios have been working in the office and surrounding rooms the cat and I have been hibernating upstairs and in the garden. It saves on Kleenex, misery, and getting paint off a a long-haired black cat (don’t ask!) but it doesn’t help to get any work done. And yes! I do need a lap-top …

Ever since I started on this blog I’ve been preaching the virtues of self-sufficiency and DIY, but just recently I’ve had outsourcing and ‘virtual employees’ pushed under my nose so often that I think it’s worth talking about outsourcing because it seems that it could be such a time and money saver for the average small or medium sized businesses.

Practically every function can now be outsourced - and bearing in mind that people who are running their own outsourcing business have the expertise and the motivation and the attitude that one would expect from a person who is ‘in business’, outsourcing is surely worth looking at. Outsourcers expect to be paid, of course -but they don’t expect rewards or benefits packages, and if they don’t feel well I suspect that they tend do as I do (and as you you probably do yourself): get as much done as possible and then get back into bed as soon as possible afterwards.

In the past people tended to outsource just one or two functions – bookkeeping was a favourite, along with payroll, receptionists and personal assistants, but these days people seem to be going much further and ‘virtualising’ everything they possibly can. And that, of course, includes credit control.

According to the June issue of the ICM magazine: “Research indicates that organisations that outsource…achieve higher profitability than those do not”, primarily (but not solely) because they get access to higher levels of expertise that they would not be able to get in-house. And, of course, they reduce their overheads.

I haven’t done a lot of research, but I think The UK Association of Virtual Assistants might be a good place to at least begin do some investigation of your own. Ms. Curtis has a great deal to say - and for once it’s all worth reading. I was impressed.

Obviously outsourcers are not ‘one size fits all’ (or at least they shouldn’t be!) and the outsourcers you chose need to be flexible, and understand your organisation and your needs – and, of course, they need to be the answer to improving your results, reducing your outgoings, giving you more time to concentrate on building your business, and be good value for money.

By the way: Yes, we are credit management outsourcers - and no, we aren't the sort of outsourcers that can ‘virtualise’ your whole credit management function for you. We only do what we do - and you can see what we do on Our Website. Contact the The Institute of Credit Managment for more advice and information on full service credit mangement outsourcers.

Government Top-Up Scheme for Credit Insurance

From May 1st to December 31st this year UK businesses will be able to buy six months top-up insurance under the Working Capital Scheme.

Under the scheme, suppliers will be able to buy Government-backed insurance either to restore cover to the original level, or to double the amount they are able to obtain from the private sector, or £1 million, whichever is the lower. The qualifying window is going to be back-dated to include reductions of insurance cover since the 1st of April, and the Government will be consulting as to guaranteeing letters of credit.

Credit insurers Coface, Atradius , and Euler Hermes are backing the scheme and will offer it to all customers who meet their criteria.

Interestingly, Fabrice Desnos, the UK CEO of Euler Hermes stated, inter alia, that “We don’t expect the take-up for the scheme to be very high…”

Not too surprising. According to Lord Mandelson this is a transitional scheme designed to "provide a much needed breathing space for businesses suffering as a result of the reduction in trade credit insurance", but like most Government schemes it hasn't been very well advertised.

Considering the problems that the withdrawal of credit insurance already has - and will continue - to cause, one would have hoped to see a well-organised publicity campaign. As it is you can find more information on page 8 of the June issue of The Journal of the Insitute of Credit Management than practically anywhere else.

What’s in a Name? How about Reputation, Goodwill, & Profit?

A couple of weeks ago I posted a New Legislation Notice about existing forthcoming changes to the Companies Act due to take place in October this year. I laid special emphasis in that particular post on the fact that – come October – new companies intending to register a similar name to existing companies are going to need the consent of those companies before being allowed to register the name.

I want to revert to that subject now, because when I was browsing the Companies House site yesterday, I came across a perfect example of exactly why the new legislation is important and necessary.

Berkmann Wine Cellars Limited was incorporated as Company Number 02190816 on the 10th of November 1987. It is a private limited Company, has a registered office at 10-12 Brewery Road, London N7 9NH, and the nature of its business is given as “(SIC(03)) 5134 – wholesale alcoholic and other drinks".

On the 27th of May 2009, Berkmann Wine Cellars UK Limited was incorporated as Company Number 06915798. It, too, is a private limited company. It has a registered office at 56 Sherston Court, Newington Butts, London SE1 6SG, and the nature of its business is also given as “SIC(03))".

I was curious enough about those entries to make some enquiries.

Berkmann Wine Cellars Limited – as you will discover for yourself if you visit http://www.berkmann.co.uk - is a family owned company that was originally founded to supply Mr. Joseph Berkmann’s group of restaurants with bordeaux, burgundy and Beaujolais wines.

Berkmann Wine Cellars UK Limited, on the other hand, has a single Director whose name is Rivero and not Berkmann and who is apparently in no way related to the Berkmann Family – just as the new Company is no way related to Berkmann Wine Cellars Limited.

Which brings me to the knotty legal problem of ‘passing off’.

The legal definition of ‘passing off’ is: “to misrepresent that one's business is that of, or connected with another, in a way likely to cause damage”, or: "a misrepresentation made by a trader in the course of trade to prospective customers of his or ultimate consumers of goods or services supplied by him, which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and which causes actual damage to a business or goodwill of the trader by whom the action is brought or will probably do so."

The definition of ‘misrepresentation’, incidentally, is simply “a representation that is untrue." ‘Goodwill’ is an intangible business asset which includes a cultivated reputation and consequential attraction and confidence of repeat customers and connections. In many cases, the word ‘goodwill’ is used interchangeably with the word ‘reputation’.

Obviously, I’m not in a position to speculate as to why the sole Director of ‘Berkmann Wine Cellars UK Limited’ chose a company name that might be so easily confused with that of a pre-existing, well-established, and reputable company – and I’m certainly not accusing that person of having any intention of ‘passing off’. Ms. Rivero may, after all, never have heard of Berkmann Wine Cellars Limited.

On the other hand, the name was an unfortunate choice on her part, and she (or her professional advisors) should have done their homework before settling on a name for the new company. Moreover, were I a Director of a pre-existing, old-established, and reputable company faced with this situation, I would be concerned enough to try to ensure that there could be no confusion – because, in all the circumstances, confusion would certainly seem to be ‘a reasonably foreseeable consequence’.

J. Smith PHD? Or Perhaps Not...

My wife has actually written quite a lot of this post - which is why you'll find her picture in the middle of it. She’s a United States citizen and lived in the US for many years, so she’s more familiar than I am with a particular type of fraud that used to be a peculiarly American – and actually relatively harmless – ‘vanity’ phenomenon, but which is now becoming a global and potentially very harmful problem.

Nearly all small or medium sized businesses screen potential employees themselves because the cost of professional screening is, on the face of it, prohibitively expensive. Actually, the price of professional screening is very reasonable given the potentially enormous costs of employing the ‘wrong’ person, someone whose credentials are not what they appear to be, or somebody who isn’t whom they say they are - but still a lot of people tend to take a look at the quote for professional help, shudder, and then decide to continue to DIY.

Most companies who do DIY personnel screening follow a standard procedure when they vet potential employees. They ask candidates to fill out an application, submit a CV, and provide references and photocopies of their professional credentials. That information is then checked – usually by a member of the personnel department or by managerial staff - against readily available databases with a view to confirming that the applicant is who he or she says that they are, that he or she has worked satisfactorily where he or she says that she has worked, and that he or she is financially stable and does not have a criminal record.

The problem is that most people who are not in the business of checking other people’s credentials don’t look beyond what are apparently obvious truths. If, for example, a candidate presents material that is apparently true in that there really is a record of a person by that name graduating from a particular school, or as having been employed as by a particular company, then they tend to accept that that person is whom they purport to be, and that their qualifications are valid. But should they?

Approximately fifty per cent of people regularly tell ‘porkies’ on their CV. Usually they're small decorative ‘porkies’ - just a tweak of a title here and a soupcon of exagerated responsibility there – nothing so drastic as a downright (and actually fraudulent!) lie. Just icing on the cake, really - that little bit extra that might get them the job they want at the salary they think they deserve.

Sadly, though, there’s been an enormous rise in identity theft over the last several years - and an even more substantial rise in the number of people who are prepared to fake or buy qualifications or manufacture references (lie, in other words!) in order to 'decorate' their CV extravagantly, improve their prospects - or just get a job, full stop.

Fake qualifications aren’t hard to come by – I could get a Doctorate tomorrow on my so called ‘life experience’ – and they can be very inexpensive. Actually they look pretty good as well, because they’re turned out on standard Degree Certificate forms and use important – albeit deliberately misleading - educational ‘buzz’ words.

Would you, for example, know the difference between a Degree awarded by ‘Columbia University’ (which is genuine) and one awarded by ‘The University of Columbia’ (which is actually run out of somebody’s back-kitchen in Kentucky) when both Degree Certificates are, to all practical purposes, identical? Probably not – particularly were I your candidate and could back up my American ‘qualifications’ with a perfectly genuine American Passport and a perfectly genuine 15 year record of working in the US.

If you’re interested in finding out more about fake degrees, and how convincing they can appear to be to a potential employer, you just need to type ‘fake educational qualifications’ into Google. You’ll get http://www.instantdegrees.biz/ right there at the top of the page. Do tour the site. It’s an educational experience. And please do note that the ‘accredited colleges’ referred to in the blurb are perfectly prepared to give their ‘graduates’ a reference... And when you've been there go and have a look at http://news.bbc.co.uk/2/hi/uk_news/7600651.stm and read that, too. That's pretty educational also.

The fake degree market has changed a lot over the many years since I first became aware of it. It’s much more sophisticated now. Time was, people bought this stuff to stick up on the walls of their ‘dens’ to impress their friends (who likely knew – or at least suspected – that they were fake anyway), and who never intended to use them in any practical way. Actually, they were just another ‘vanity’ object that no one took very seriously – just like the ‘vanity plates’ you can buy for your car.

That isn’t the case any longer. Fake ‘Degree Certificates’ these days are intended to be used in the market place - and people obviously do use them. Moreover, they often get away with it because the people who are in the business of providing those Certificates make them more convincing and offer better back-up for the people who buy them all the time. And you can't always rely on a nosy hack to dig out the truth about them and report it all on 5 Live.

Fake degrees apart, don’t forget that candidates can present documentation and references that paint a perfect picture of the wrong person - or disguise the fact that they’ve spent the last five years as a guest of Her Majesty.

It isn’t difficult to steal someone else’s identity – ask any one of the thousands of people who have lost theirs lately - or to get around uncomfortable facts about one’s past history. The Rehabilitation of Offenders Act 1974 allows people convicted of many criminal offences to legally avoid disclosing those convictions once they are ‘spent’ and enough time has elapsed.

Neither is it too difficult – or even that risky – to manufacture a reference. All you need is access to a computer (to run off the letter-head) and a telephone. It's nice, of course, to have somebody who is prepared to answer the telephone as XYZ Company and swear that you are actually a model employee who worked has there for 10 years but is now (sadly, and to the great distress of the management) having to relocate for family reasons, but it's not vital. In a pinch you can do it yourself. An amazing number of people, given a telephone number that is apparently answered correctly, never bother to check whether it’s actually listed to a company or not. They accept what is – apparently – an obvious truth.

The fact that someone has been silly or desperate enough to buy a piece of paper, assume a false identity, manufacture a reference, or try to bury a criminal conviction in order to get a job doesn’t automatically mean that that person intends to steal from or defraud a potential employer. But you do have to aware that you might be a target for people who are neither silly nor desperate, but might want something you’ve got – like saleable information.

Fraud and theft by employees is always a potential problem for every business, but never more so than during times of economic hardship (which means sometimes) or when financial or other information is at a premium (which means always). If you DIY your personnel screening be sure to check identities and addresses, credentials, credit and criminal records and work histories very, very carefully. Mistakes can be expensive.

The 'Halfway House' - A Route to Safe Trading

You can get an awful lot of encouraging information about a prospective new customer from other people in the trade, a formal Credit Circle, a credit reference agency - or all three sources - and still feel nervous about supplying on credit. And you should.

The fact is that some customers will pay X number of their creditors absolutely to terms, but still cause endless problems for one single supplier – and that fact becomes particularly noticeable if you sit (as I do) in Credit Circles, and listen to the information that comes back from members sitting around a table.

Seven or eight members of a Credit Circle can report a single customer as being an ‘OK account’; a ‘good account’; or ‘a clean account’, but one or two other members (usually the ones who have put the customer on the Agenda in the first place, of course!) will report that same customer as being ‘slow’, ‘needing chasing’, or just as being ‘a nightmare’, and talk about unanswered letters, unproductive telephone calls, and invoices that are 90 or even 120 days overdue.

Noticeably, it’s small suppliers that tend to talk most often about ‘nightmares’, slow payers, and customers who need to be chased hard for payment – and it's noticeable, too, that the ‘nightmares’, the slow payers, and the customers who need to be chased hard for payment are frequently new accounts that begin to go pear-shaped immediately following the first delivery.

Usually, small supplier victims have done their homework. They’ve obtained a satisfactory new account opening form; made all the relevant enquiries; received satisfactory answers, and set credit limits based on those facts. Unfortunately, that doesn’t mean that they’re going to get paid on time – or even at all – despite the fact that their delinquent 'nightmare' customer is behaving very well indeed so far as other suppliers are concerned and has a clean bill of health from a credit reference agency.

The answer to avoiding potentially predatory new customers - and any new customer has the potential to be a predator however solid it appears to be from information supplied - can be to use a ‘halfway house’ technique.

Halfway Houses in England used to be public houses cum hostelries situated halfway between a place that was an inconvenient distance from the next possible ‘stop-over’, but the present purpose of ‘halfway houses’ is to act act as bridges to normal living and to provide monitoring and support for people whilst they begin to integrate (or re-integrate) with society.

If you supply goods against the security of post-dated cheques, you can act as a ‘halfway house’ - offer support to your customer, monitor its behaviour, integrate your customer into your own commercial society, and safeguard yourself and everyone else that is part of that society as far as you possibly can.

Post-dated cheques are a ‘bridge’ to ‘normal’ commercial living. They allow you to offer credit and trust in a limited, relatively secure, and comparatively safe way. They also, of course, allow you to offer a form of credit when you think it would be commercially inappropriate or inadviseable to demand cash with order.

An honest and financially stable customer who wants or needs what you have to offer and is looking to trade long-term will never be offended by a request for post-dated cheques as security for a first - or even a series - of preliminary orders. They're probably going down the 'halfway house' route themselves.

And yes, I know I' ve said 'comparatively safe' and 'relatively secure'. Dishonoured cheques are not always 'indefensible' - but that's a whole other story...

New Legislation - Existing & Forthcoming New Provisions to The Companies Act

Significant changes to the Companies Act will come into force in October this year.

• Provisions relating to authorised and nominal share capital will be abolished, and existing companies will be able to remove pre-existing references to authorised share capital, and allot shares above that ceiling.
• The Memorandum of Association will no longer set out the objects of the company. Existing companies will be able to amend their Memorandum to change or remove this provision, and objects will be unrestricted for new companies.

Most importantly here: companies intending to register a similar name to existing companies will need the consent of those companies before being allowed to register the name.

A number of provisions have already come into force:

• It is no longer a requirement for private companies to hold Annual General Meetings.
• Extraordinary Resolutions have been abolished.
• The notice period for all meetings is now 14 days.
• Annual Returns for private companies need no longer give details of shareholders’ addresses.
• The period for filing accounts has been reduced to nine months from the year end for private companies, and six months from the year end for public companies.

Most importantly here: Directors have a duty to avoid conflicts of interest, and Directors’ duties are set out in statute for the first time. Duties include promoting the success of the company and considering the interests of stakeholders as well as shareholders.

With Friends Like This...

Obviously, businesses need to collect the money due to them from debtors. Equally obviously, their ability to do so is vital to the economy – particularly as banks remain reluctant to lend money. Sadly, the Government does not seem to be able to grasp these simple facts and - despite everything we hear and read about Government plans to help business - seems intent on making things worse, not better.

• Court fees for debt collection are still set to rise so substantially that it will in many cases be uneconomic to use the Court system – and they are already so high that I have been advising clients to avoid going down that route for some time.
• The Insolvency Service has already increased the deposits payable on Company Winding-up Petitions and Creditors’ Bankruptcy Petitions as of April 6th. Those fees, too, were already prohibitive – so that route, too, seems set to be closed to many creditors.
• Helpful proposals to amend the laws governing Attachment of Earnings and Charging Orders will not now be implemented - probably due to public opinion as to the Government's handling of personal data.

And just to bring a little more sunshine into your life: creditors chasing individual debtors or consumers must now use new wording in their chasing letters – debtors must be advised that agencies such as Citizens Advice can help them, for example – and it is proposed that Letters Before Action contain a 14 day cut-off period rather than the 7 day period previously demanded. This is an extra administrative burden on creditors and can only result in further delays in payment.

With friends like this...

Fraudsters are Equal Opportunity Opportunists

Fraud is always with us – and hard times increase the temptation for customers, suppliers or staff to steal – but small business tend to think they are too small, and know their staff, their customers, and their suppliers too well to fall victim to it.

Sadly, nobody knows anybody that well - and it’s small businesses rather than large ones that tend to attract potential predators, because large companies are hyper-aware of their vulnerability to fraud and theft, run very tight systems, have prospective employees professionally vetted, and keep a close eye on the activities of the employees they’ve already got.

Things to be aware of:

Some suppliers will under-deliver goods and over-charge for delivery if they think they can get away with it. Deliveries need to be checked carefully BEFORE the Delivery Note is signed.

Some customers will claim under-deliveries of stock when the delivery was actually correct. Delivery personnel should always be sure to get signed Delivery Notes and, as signatures are often illegible, Delivery Notes should demand that the person who signs the Note add his or her name in capitals together with his or her position with the Company.

Some customers will simply disappear without paying - but they will only be able to do so if the supplier hasn’t done it’s homework before agreeing to give credit and delivering goods. Fraudsters quite often set up off-the-shelf limited companies with the intention of using those companies to obtain goods for which they have no intention of paying. Addresses are often empty factory premises – and there are, alas, plenty of those to chose from. Neighbouring businesses have no reason to question ‘new arrivals’ – particularly if the place looks busy and occupied and goods are going in and, of course, going out again. Many newly set up off-the-shelf limited companies are quite genuine – but that doesn’t necessarily mean that they are a good credit risk. Cash with order is the only safe way to deal with companies that have no trading history – and you should NEVER give credit to anyone who can only give you a mobile telephone number. We’ve all become so used to using mobile telephone numbers that we’ve stopped thinking about what they really are – mobile and (ultimately) disposable. Don’t think that people haven’t fallen foul of that. They have.

Employees tend to steal goods or cash. There should be no opportunity for anyone to do either, but a determined thief can always find a loophole somewhere. Two thirds of all employee fraud is motivated by debt or gambling problems, but greed or need are obviously also factors. Review your bonus structure and pay attention to staff morale: people tend to rationalise that their performance is worth more than they’re getting, or that their job is so unsatisfactory that they’re entitled to get something extra out of it. Investigate departments that have a high staff turnover: it’s easier for an employee to look for another job than to blow the whistle on fellow employees whom they suspect of stealing. Monitor the car park, and look carefully at the ‘toys’ people have. It’s stupid to flaunt one’s ill-gotten gains, but people do it all the time. Consider whether the salary you are paying would really support the Blackberry, the Rolex, the vehicle in the car park, or the exotic holidays.

Pay attention to ‘whistle-blowing’ letters; always take them seriously, and look carefully at the claims made. One percent of the time they’re spiteful rubbish. Ninety-nine times out of a hundred they’re a red flag that indicates that something is seriously wrong somewhere and that it’s time to start turning over stones and looking at what’s going on underneath them. It’s particularly important at the moment NOT to ignore whistle-blowing letters. They tend to be rare when times are bad because people are afraid of rocking the boat and are therefore more willing to turn a blind eye until they can distance themselves from the problem by getting another job – which is why, of course, you should be wary of high staff turnover in particular areas.

Credit management isn’t just about getting in money from customers. Fraud and theft by customers, suppliers and staff is on the increase. It’s unpleasant to have to keep a watchful eye on everyone around you and pay attention (as you should!) to what your employees obviously do or do not have. It’s unpleasant to have to monitor the relationship that exists between your sales team and your customers and take careful note of year end sales team behaviour, and post year end issue of credit notes - but you should.

Professional fraudsters are looking for a quick in and out. They’re easy to avoid if you’re careful, and they’re a fast one-time loss if you’re not. Customers, suppliers and staff work under the ‘sight-line’. They aren’t easy to spot unless you’re actively looking – and they can bleed you slowly to death if you’re not looking. Begin looking.

New Legislation - Debt Relief Orders

Debt Relief Orders were introduced in April. To whom exactly they are going to be a relief remains to be seen.

The intention of the legislation was to allow people with no assets and a low income access to debt relief - Consumer Affairs Minister Gareth Thomas clearly stated that the new debt solution was aimed at people on low incomes and with little money - and (as the length of Debt Relief Order is typically 12 months, but can be extended) time to pay off their debts.

In reality, however - which is where the rest of us live - the legislation means that anyone who has debts of less of £15,000, assets of less than £300, and a disposable income of less than £50 a month is entitled to to apply for a Debt Relief Order without having to enter full bankruptcy, and (if the Order is successfully completed) can be free of their debts after a 12 month period - which I think you'll agree is not quite the same thing at all.

Debt Relief Orders can be applied for on-line. An approved intermediary completes the application on behalf of the applicant, and on receipt of the application and a fee of £90 (which is about a fifth of the fee for a regular Bankruptcy Order) an Official Receiver will make the Order, which will thereafter protect the debtor from any enforcement action by his or her creditors. There is no Court involvement whatsoever in this process.

The legislation states that once an Order is in place, the debtor should make arrangements to pay creditors should their financial situation improve - but who is to monitor those changes in situation? It seems to me that monitoring a debtor's circumstances and notifying the Official Receiver of any change will fall to the creditor.

I have yet to work out a foolproof ( or any other!) method of successfully monitoring a debtor's true circumstances, and I would be delighted to hear from anyone who has. (Do try to think everyone; Accountants KMPG expect up to 50,000 people to take advantage of these Orders this year, so there could be a pot of gold at the end of rainbow for anybody who comes up with a fail-safe 'MonitDebt' system).

Anyway - and coming back to the real world - it would (a) be wise to try and identify customers who might potentially apply for a Debt Relief Order and give such accounts special attention - the debts could, after all, become uncollectable very quickly, and consequently standard collection methods would almost certainly fail - and (b) monitor any customer who has obtained such an Order as best you can and notify the Official Receiver of any change in that customers' circumstances as quickly as you can.

I am not - as you have probably worked out for yourself - thrilled with this (doubtless well-intentioned) legislation. I am sure that it will be a relief to those people described by Gareth Thomas as 'already struggling' and who need to be 'in control of their finances and treated fairly'. I am also quite certain that it will be abused.

Patience Is An Important Post-2008 Virtue

Attitudes to debt collection, and collection techniques that were appropriate, and which worked well in the past, need to be adapted if they are to work as well in the current economic climate. 2009 demands a more imaginative, flexible, patient approach to collection, and a greater willingness to compromise and look to long term goals rather than short term gains. Consequently, if your customer has a genuine problem of the sort I was talking about a few days ago, it’s a bad idea to insist on immediate settlement, try to impose settlement terms that are unrealistic, or rush to issue proceedings – or in fact to take any action that might push the customer ‘over the edge’ and into insolvency.

It’s far wiser these days to accept long term settlement offers and continue to trade on a cash with order basis and accept small instalments on the outstanding balance of the account than to push for larger or more frequent payments and/or stop trading altogether. After all, even if the arrangement fails and instalments stop after two or three months, the outstanding balance of your account will have been reduced – and you will have been selling your goods or services safely in the interim.

This is obviously better option than getting little or nothing by pushing too hard – and the rewards gained from exercising flexibility and patience would be infinitely greater than anything you might receive from exercising your right to issue legal proceedings to try to recover the debt. Proceedings are already very costly – and the cost of issuing them may rise by 233% if Ministry of Justice proposal are accepted. There are indeed times when issuing legal proceedings, obtaining Judgment and then putting the whole issue on the back-burner until times get better can be a very good option – but those occasions come along a lot less frequently than they used to, simply because businesses are recovering a lot less frequently than they used to, so on the whole it’s better to avoid using the Court system.

Excuses That Aren't Really Just Excuses

The fact that your customer is having problems getting paid by its own customer isn't an excuse for non-payment - and neither is the fact that your customer company is running at loss - but these days you can't (or at least you shouldn't!) write off any of those factors as being 'not your problem' and press for payment regardless.

If your customer's customer has gone into Administration, for example, or you did sub-contract work for a customer which has not been paid by its own customer, or or your customer's company is running at a loss, then your customer may simply be unable to pay the whole of your oustanding account immediately - or even in the short term. If that is the case, then the only reasonable answer is to compromise - and to try to help your customer to get all its other creditors to compromise also.

Nothing is gained - and much can be lost all round - if one single creditor refuses to be reasonable and insists on immediate payment or takes legal proceedings rather than agreeing to accept settlement over a period, however long that period might be.

Everyone's best option now is to try keep any troubled business active, and trading, and in the land of the living rather than condemning it be yet another 'gone goose' company - out of which nobody, believe me, will get anything at all.

Excuses - We Are Your Biggest Customer

This is less an excuse for late payment than a form of commercial blackmail, and it's usually accompanied by the unspoken threat that the customer will delist the supplier and take its business elsewhere if the supplier doesn't knuckle down and accept the situation.

What you do about big customers who consistently pay late will obviously depend on several factors, but if the customer isn't a supermarket or a similiarly huge entity, then asking yourself some basic questions can help you to come to a decision as to whether to press for timely payment or accept the fact that this particular customer will never pay to terms.

One important question is: 'how profitable is this customer really?'

Are you, for example, having to borrow money to pay your own accounts? If so, how much is that costing? Are you having to pay your own creditors late? If so, what effect is that having on your company's credit rating? Are you missing out on other sales because the cash flow problems caused by the customer's late payment means that you can't re-stock? Are the administrative expenses involved in dealing with this customer higher than they should be? Are you giving them lower prices per unit?

If the answer to most of those questions is 'yes', then you will need to analyse what the impact on your own business would be if you insisted on prompt payment and the customer really did take its business elsewhere. Could you, for instance, sell the items they buy to other customers at the same or a better price in sufficient volume to balance out what it is costing you to deal with this big - and actually bad - customer?

Excuses: Your Sales Manager/Salesman/Assistant said...

This can be an excuse to delay payment, but on the other hand in might not be, so the first thing to do is to find out exactly who said what to whom - not least because what any representative of your Company says could bind your Company to abide by that statement.

If it turns out that a representative of your Company has actually agreed to give a customer time to pay without reference to you, then you have several important things to do immediately:

• Go through the usual checks to find out more about the customer's real financial situation.
  
• Get in touch with the customer, and either agree to the arrangement or (better!) try to arrange a more advantageous payment plan.
  
• Put the agreement in writing - and make sure to stress that the arrangement is 'one time only' and does not apply to other contracts.
  
• Decide how much (if any) credit you are prepared to extend to the customer for the foreseeable future.
  
• MAKE SURE THAT THIS SITUATION CANNOT ARISE AGAIN!

This kind of thing tends to happen where there is no formal Credit Policy in place - or where employees have not been made aware of their place in the Credit Policy scheme of things.

Obviously, if you already have a Credit Policy, then your employees need to be made aware of it, and given to understand that they have to abide by its terms.

If you do not have a Credit Policy - you need one! You'll find the basic ingredients of a credit policy at http://www.metlissbarfield.com/systems.htm under the heading 'Essential Points to Cover'. If you have a problem using the 'recipe', please let me know. I'll do what I can to help.

New Credit Information Service

Commercial credit agency Graydon UK and business data specialist Validis will launch a new credit information service for SME's this summer.

The new service is intended to allow SME's to exercise greater control over the information provided by credit reference agencies to prospective creditors, and improve their access to finance and credit insurance cover.

Information provided to prospective creditors/commercial lenders under the new service will be based on reliable, detailed up-to-date financial data including validated monthly management accounts.

The Federation of Small Businesses has endorsed the new venture, saying that it will help firms needings finance as the economic downturn continues.

Unacceptable (but Frequent) Excuses for Late Payment

• Mr X has just died.
• Our Company Secretary has just left.
• We are in the middle of changing banks.
• We have just acquired a new Company, and have got rather behind.
• Because of holidays/staff shortages/the 'flu/ Christmas, we have got rather behind.

All of these are unacceptable but very frequently utilised excuses for late payment - and basically they are all designed to appeal to your better nature or to simple fellow-feeling.

Obviously, it's very sad when anyone dies - but unless our fictional 'Mr X' was a sole trader with no staff at all and there was never any co-signatory on the business account, then his death would not constitute a valid reason for late payment. By all means be sympathetic, but don't be so sympathetic that you fail to ask questions. If Mr X really was a sole trader and completely bereft of staff, then the person most likely to answer the telephone is a family member - in which case you will likely get all the answers you need just by listening and making sympathetic noises in the right places. If a member of staff answers the telephone, however, then you can be sure that that person will be getting his or her salary cheque as usual, and you should press to get your own cheque.

Whenever a Company Secretary leaves, arrangements must obviously be made beforehand by the Company for a change of signatory on the Company's cheques - and it's unlikely that the Company Secretary was the only person capable of signing the Company's cheques in the first place. Furthermore, no bank will leave a Company without a cheque book, and a temporary cheque book will therefore have been issued to your customer. In either case, don't forget that you can settle for a banker's draft, a money order, a banker's cheque, payment by BACS - or cash. Mention these alternatives, and press for payment.

Everyone is overworked and under pressure at some time or another. Many people know all about the holes in the system that can appear due to contagious diseases or because people need to be able to take their holidays during the school holidays and how difficult it can be to fill those holes adequately; a lot of people understand far too much about the 'Christmas' rush, and some people understand the frenetic activity and administrative nightmares that can accompany an acquisition - so we can all sympathise with people who are experiencing those problems and pressures. But not to the extent of accepting the existence of those pressures as being valid reasons for failing to pay suppliers on time. Sympathise, empathise, relate your own experiences - and then press for payment, because that is exactly what would happen were the shoe to be on the other foot...

Dishonoured Cheques

It's obviously a very worrying sign if a customer's cheque is dishonoured on first presentation.

The first thing to do, of course, is to get in touch with the customer and ask for an explanation and either a replacement cheque or some other form of payment.

No matter what excuse the customer offers, and never mind how speedily you are paid thereafter, you will need to get an up-to-date Credit Report and base future trading on the information it provides. It would be wise in any event to reduce the customer's credit limit.

NEVER RETURN A DISHONOURED CHEQUE TO THE CUSTOMER. It is important evidence of default - and, of course, that the customer accepted its indebtedness, and intended to discharge your account.

The Cheque Was in the Post After All. Sadly...

• It wasn't signed, or
• It wasn't dated, or
• It was wrongly dated, or
• Words and figures did not tally.

It is possible for an unsigned cheque to be sent out in error, so you shouldn't assume that this is just another delaying tactic. You might, in any event, be able to present an unsigned cheque if your customer agrees to speak to the bank and request its acceptance of the cheque.

If you receive an undated cheque you can simply add the date, but wrongly dated cheques can be more difficult to deal with.

Cheques that are wrongly dated in error tend to turn up at the turn of the year, and there is no alternative but to send them back and ask that the customer amend the date. Cheques written by people to whom the English dating system (day, month, year) does not come naturally may also need to be sent back for amendment if the date is written in figures - 5/9/09 rather than 9/5/09 for example.

It is, of course, possible just to present wrongly dated cheques and hope that they clear - but it's a bad idea because it can cause unnecessarily long delays in payment if the cheque is dishonoured by the bank.

If the words and figures on the face of the cheque don't agree, it is possible just to claim the lower amount, but again it's better just to send the cheque back for amendment.

ALWAYS TAKE A PHOTOCOPY OF A CHEQUE THAT NEEDS TO BE RETURNED TO A CUSTOMER FOR AMENDMENT. The photocopy cheque is important evidence of the customer's acceptance of its indebtedness and of its intention to pay your account.

Excuses, Excuses... The Cheque is in the Post

The cheque's in the post. Heard that one?

The trouble is - thanks to the Royal Mail! - the cheque really might be in the post. In which case it could turn up 'anywhen' as people used to say where I lived for a big chunk of my life.

The main objective here is find out whether the cheque was actually sent or not, and one way of finding that out is ask for details of the cheque - the number, the amount, the date, the bank, the account number, and so on - because it's really quite difficult to fabricate the details of a non-existent cheque off the top of your head.

If you get the details and you still don't receive the cheque within a couple of days, call back, ask the customer to stop the cheque and issue a new one. If you don't get the details - ditto.

DON'T ask them to post the replacement!

You don't want to be paid 'anywhen' - or even 'somewhen'! - either of which I know from experience could certainly turn out to be 'never'. You want to be paid ASAP. So it's a good idea to tell your customer that - as luck would have it! - you'll be passing by their premises in a couple of days time and you'll stop off and collect the replacement cheque.

It's really very difficult to tell someone that they can't call to collect a replacement for a cheque that has apparently been lost in the post. It's even more difficult to formulate an excuse as to why they shouldn't do so. And as it's a real giveaway to do either one of those things, people tend to come clean if they have a real problem, or pay up if they don't.

Obviously, if your customer is many miles away and you don't employ representatives then it may not be convenient for you to collect a cheque, but these days convenience sometimes has to give way to necessity - depending, of course, upon the size of the cheque in question...

Always Investigate Complaints - They Might be Legitimate

Many companies use complaints to delay or avoid making payment, and no doubt you have had, or now have, or will have customers that use this tactic - but you shouldn't become so suspicious that you treat all complaints as groundless and all customers who complain as nuisances or bad payers.

You should never lose sight of the fact that a complaint might be justified, and that your customer might have a genuine grievance. ALL complaints should be thoroughly investigated - despite the fact that this will inevitably delay payment - and pending the result of your investigation, all collection activity against the complainant must stop.

If you are not totally in control of the collection process, make sure that everyone involved knows that there is a complaint, and that all collection activity against the complainant must stop. There's nothing worse than dunning a disgruntled customer.

Time to Make Enquiries

So. You've dropped a chatty e-mail to a 'friend' or two and attached a Statement, written a reminder letter and posted it (and perhaps e-mailed it, too), and made a telephone call, but you still haven't been paid. What now?

Time was, you could have written one or three more e-mails, sent out one or three more reminders, and made a whole series of chasing telephone calls and still have been pretty sure that, in most cases, the cheque would turn up one day or another, better late than never. But this isn't time was and, post 2008, you can't afford to behave as though you are still living in time was.

Debtors fall into three categories:

1. Will pays
2. Always late pays
3. Won't pays, and
4. Can't pays

When 'will pays' and 'always late pays' suddenly don't pay according to their usual pattern, and your collection efforts meet with no response, the question arises as to whether these category 1 and 2 customers have dropped into category 4.

Moreover, it's worth considering whether any of the category 3 'won't pay' customers are using complaints to disguise 'can't pay' situations.

The only way to answer those questions is make some background enquiries. Getting a Credit Report from a credit reference agency, and making searches of The Register of Judgments, Orders and Fines, The Individual Insolvency Register and any one or more of the many available debtor registers will enable you to find out more about your customer's real situation, and make a decision as to how to proceed.

Don't Talk, Listen!

A couple of days ago I wrote a list of the Do's and Dont's of telephone collection. Listening was on the list - and I capitalised the word 'LISTEN' to emphasise its importance. I now want to emphasise it again, because I sometimes think that people don't really understand how to listen or what listening really is.

Listening isn't a passive activity. It isn't waiting for your turn to speak, and isn't just about hearing what other people say either.

When people talk, they always reveal more than they intend to - how they're feeling, what they're afraid of, and what they want from you. In other words, genuinely listening doesn't just involve hearing someone else's words and responding to them; it means registering what people are not saying directly, or what they might be reluctant to say, or what they don't want you to do or say in response to what they are saying, and either filing that information away for future reference, or responding to that 'sub-text' immediately and directly.

People who have a complaint need no encouragement to talk about it - the problem there is the time it's going to take them to run out of steam and give you a chance to respond appropriately - but people who have no complaint to make but have good reasons to be evasive (and you may meet plenty of those!) often do need encouragement to come up with sentences that include more than three words and all too frequently consist of just one.

It isn't difficult to encourage people who are reluctant to talk to begin to talk, simply because many - in fact most - people find silence uncomfortable, and can't wait to fill it. Consequently, if you resist the urge to talk yourself, remain responsively silent, and listen not just to the spoken words but to the underlying sub-text of the ensuing conversation, you will learn a great deal more from the person you are speaking to than he or she will ever be consciously aware of.

Quite a while ago now I remarked that the telephone can make it difficult to judge someone's real attitude or reaction to your collection call - and that's true. But by using the power of silence to encourage people to talk to you and listening - really listening - to what they say, either outright or indirectly, you can make quite accurate judgement calls as to the real state of play where your defaulting debtors are concerned.

And don't forget: if you talk too much, and listen too little you, too, may reveal more than you intend to...