Effective debt recovery to support profitability
Have you ever wondered whether your cash flow is really flowing, or whether your profits are actually trickling away? In the current commercial environment, many businesses are seeing their profits, growth and cash flow under pressure from a variety of external factors. These could be increases in staff costs, market uncertainty or simply the increasing cost of production. With the current political climate, businesses should be especially aware of external factors that may impact their profits and cash flow. James Melvin-Bath, solicitor at Tayntons in Gloucester, said: “Whilst most businesses have little control over the external pressures placed upon them, they can ensure that the orders or clients that they have are most efficiently generating reliable revenue. The conversion rate of your sales leads to actual sales or orders is only one aspect of ensuring this. One aspect that businesses often overlook, or are cautious to utilise, is debt recovery. “Debt recovery can have an unpleasant image, but it doesn’t have to. When used correctly, effective debt recovery can not only ensure that you successfully manage your cash flow as profitably as possible, but it can resolve disputes with your clients without impacting your relationship negatively.” Relationship management A huge part of modern debt recovery is having an open dialogue with your debtors. As a third party to any dispute, solicitors can liaise with your debtors about any issues, in a way that feels more objective and remote than dealing with those grievances directly. Working on your behalf, solicitors will listen to your debtor’s concerns, relay them to you and work with you to attempt to repair the relationship, if you wish to retain that client. James continued: “Away from the images of bailiffs on television, this now forms a substantial part of what we do. By dealing with debt recovery in a modern and open manner, a business can ensure that they are correctly reimbursed by their clients, without losing out on future
business.They can even potentially improve future business relations by outlining clear boundaries. “This approach also gives you the potential to manage the reputation of your business, by giving you another chance to
James Melvin-Bath
deal with complaints at a distance, reducing the risk of reputational damage from dissatisfied customers.” Good debt, bad debtors Unfortunately, there will always be clients and customers who fail to make payment, whilst being able to do so, for a variety of commercial reasons. One of the most common examples is where a business has traditionally been very relaxed with their debt recovery. This can result in clients prioritising other debts, rather than paying you. This is especially common where smaller independent businesses are reliant upon a few large customers. James said: “These are not bad debts, just bad debtors. These clients or customers have the ability to settle the funds due to you and choose not to, as you represent the easiest form of free credit.” So how do you reduce the chances of this? The first step in getting a grip of your credit control and cash flow is ensuring your commercial agreements are set out clearly in a written contract. Any contract you agree should contain clear provisions for you to recover certain charges in relation to debts that are late being paid. These contractual provisions make it clear to both parties that credit control is important to you and that late payments will incur costs. James added: “Once your contract is correctly agreed, drafted and signed, focus on delivery of your product or service. This is an aspect of credit control that is often forgotten. A huge amount of late payments are due to very minor disputes over the execution of an agreed contract. By proactively engaging with your clients in relation to any issues or delays, you can avoid later complaints and ensure that the majority of your debts
20 | February 2019 | www. punchline-gloucester .com
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