Managing late payment

The true cost of credit control and debt recovery

Do you undertake credit control and debt recovery in-house for cost-saving reasons? If you do, the question is: is it truly cost-effective?

Our clients are often surprised to learn the true cost of carrying out credit control in-house. During a recent visit, a client explained that he personally undertook the firm’s credit control for two reasons; the key reason being cost, but also to maintain control.

When asked how many days a month he spent on credit control his response was between four and six days. What is the true cost? He charged his services out based on a daily rate of £400. This means each month the loss to the business was up to £2,400 per month – or £28,800 each year!

Rather than being a cost to our client’s business, we see the outsourcing of credit control and debt recovery as an investment allowing your time to be spent doing what you do best: running your business. And with our service, you don’t need to worry about losing control.

Taking non-court action to collect debts

Court action should be seen as a last resort. Before you take court action, you should consider the alternative methods of recovering debt outlined below.

While you consider the options, you should continue trying to recover the debt using the usual methods, e.g. telephoning the debtor to remind them that the payment is now overdue.

Involvement of one of the following may also assist:

• An accountant – some offer debt collection services as well as advice on credit control and debt collection procedures
• A solicitor – some solicitors specialise in debt collection. They can issue powerful letters in a short space of time. Agree a fee for this service in advance

Another alternative is to use a debt collection agency.

The advantages of using an agency are that:

• They have the time, expertise and resources needed for the job
• It can be a fast method of recovering debts so will save you time
• If the debt collection agency is polite and professional, you may retain the customer – assuming you want to. This is unlikely to be the case if you take legal action
• The agency can instruct solicitors on your behalf if the customer still refuses to pay

Brighter Outlook for Outsourced Debt Collection

A recent survey has revealed that businesses around the world have an increased likelihood of outsourcing their debt collection requirements in the aftermath of the recent financial crisis.

The figures, the result of a survey of over 3500 companies across four continents, revealed that trade creditors were often outsourcing their debt recovery as a means to expedite the payment process.

“Of all countries surveyed, Belgium and the Netherlands stand out with the highest percentage of companies increasing their use of outsourced collections services (44 percent and 43 percent, respectively). Amongst eight different criteria for selecting a collections agency, businesses across all countries deemed the success rate of collections efforts to be most important, followed by price, global expertise, local knowledge and easy access to up-to-date information,” the survey revealed.

The review itself gives more than useful insight into the attitude of businesses towards debt collection and shows that, despite the expected similarities such as how businesses assess success rates or intimate knowledge of in-country and global collections landscapes, there are many geographic and cultural variations.

The survey looked at the impact of the recent economic woes had on outsourcing debt collection needs, and also gave some insight into the factors that companies consider when they are looking for a debt collection agency, as well as those that might discourage a business from outsourcing their collections. For example, one note of interest showed a difference in opinion when considering the importance of the relationship with the debtor in appointing a collections supplier.

Another finding was the additional services in collection agency’s portfolio, which proved universally to be the least important factor in the selection of a debt collections service provider.

The survey was conducted among 3,538 businesses across 20 countries including Austria, Belgium, Denmark, France, Italy, the Netherlands, Poland, Spain, Sweden, Switzerland, the United Kingdom, Australia, Canada, China, Hong Kong and the USA