Chairman of the Tax Advice Network and BookMarkLee
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Who collects your debts?

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31st Jul 2014
Chairman of the Tax Advice Network and BookMarkLee
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One of the ways to become more successful in practice is to reduce the level of cash that is tied up in the firm - and the same is true for clients' businesses.

We often hear of how some accountants keep ‘lock up’ (debtors and WIP) very low through innovative billing procedures. But what happens when a debtor delays payment? What can you do to get the money in? In a worst cases scenario your client might go under, thus leaving you out of pocket.

I recently spoke with Steve White, an ex-policeman who has been running a debt collection agency since 2002, to learn why accountants and clients might outsource this activity.

ML How do you quash the negative stereotypical image of a debt collector?

SW – It's my pet hate. Gone are the days of six-foot-four tattooed bikers wielding baseball bats.

Our website contains a video of us, as well as pictures of everyone. Our office has an open door policy and many a trader pops in for a tea. I do a lot of business networking too. I think getting out there is vital.

ML- So why should any accountancy practice invite in a debt collector?

SW –  Simply put, because it will help the practice and the client.

ML But I would imagine most firms of accountants can do debt recovery themselves.

SW – They most certainly can, but it's all about time vs money. Is your time better spent growing your business or are you happy calling your client umpteen times listening to one sorry excuse after another?

ML- I suppose it depends on the client. If the accountant is in regular contact they can offer further advice and try to help the client avoid getting into a worse financial position. But I have long maintained that accountants should not allow themselves to be treated as a cheap form of finance or bank.

SW- That’s right, If someone isn't paying you they are not a client, they are just a drain on your resources. Some accountants are so concerned to avoid upsetting clients they hold back from being too pushy when payment is overdue. Simply stated, good clients pay on time. Who wants to work for clients who routinely need chasing?

MLAccountants are often used to having to chase to obtain paperwork for accounts and tax returns. Chasing late paid fees may seem like a logical extension. At some stage though you need to get heavy, to stop doing any work and to wait for the outstanding fees to hit your bank account. In those sort of cases who should do the chasing?

SW –  I would suggest that the accountant would normally prefer to retain the 'good guy' image. It’s very difficult to be that person and to keep ringing up chasing for your money. It doesn't sit well. That and you’re not trained to do this effectively could be a hindrance.

MLClearly we’re not talking about the day-to-day late payers. Your focus is on the larger sums that are outstanding for longer than usual and where normal gentle chasing is not having the desired effect?

SW -  Not necessarily but I can see why you might think that. The analogy I use is, would you call a plumber in to fix your photocopier? Of course not, so why not engage with an expert in that field? We have been specifically and professionally trained to recognise and anticipate most types of delinquent account situations. We know what to ask, when to ask and how to ask. The answers we get determine our next question. It’s a question of specialising.

MLI can see that this would be even more relevant for clients who do not have any financial skills and are not used to having to chase clients or customers to do anything. Whether we‘re talking about accountants or their clients, what are the options?

SW –  Typically, there are four basic options to pursue late paid debts:

  • Do nothing
  • Carry on ringing and chasing
  • Engage with a third party, either solicitor or debt collection agency
  • Take the client to court (eg: via Money Claim Online)

Of course if you had credit insurance, you'd just make a claim.

ML What are the differences between using a solicitor and a debt collection agency?

SW – Cost & expertise. Is your solicitor a specialist in debt recovery? What are their processes? We find that the general rule of thumb is that they send one letter.

Do you have access to their system to see how your case is progressing? Can you talk to anyone in the practice about your case? Will they mediate on your behalf? Will they do all this on a no win no fee basis?

MLWho bears the costs of pursuing debtors?

SW – The good news is that the Late Payment of Commercial Debts Act was amended in March 2013 and now includes the phrase – “Reasonable Costs can be applied”. This is good news as the cost of engaging a solicitor or debt collection agency can be added to the debt you are seeking to collect.

ML What sort of charges can be involved?

SW –  This will depend on whether you use a lawyer or a debt collection agency. To avoid unnecessary costs I'd recommend using a 'no win, no fee’ company. This reduces the risks but do ensure they are reputable.

As with any new service provider check them out online, see what others have said about them and, ironically, you should also do a credit check on them too.

ML What are the disadvantages of simply taking the debtor to Court?

SW – The time that it takes to administer and understand all the legal jargon, knowing what the forms are, when and why to use each of them plus the time frames needed. It’s the age-old principle of the amateur vs the professional.

MLWhere does all this fit in with the accountants’ terms of business?

SW –  To ensure you can recover reasonable debt collection costs it is best for your terms of business to include suitable reference to the recovery of charges under the Late Payment of Commercial Debts Act.

ML If memory serves this is addressed in the sample letters provided by the professional bodies and is explained in the supporting guidance. Finally Steve, what would be your one top tip for accountants who choose to continue chasing late paying clients themselves?

SW – Tough one. How about this? When sending out a letter, whatever you say you are going to do, be it to send it off for court proceedings, engage a third party, or even sit in their lobby until you get paid - do it.

Steve White is Vice Chairman of the South Wales Branch of the Institute of Credit Management and MD of Thornbury Collections. He can be contacted on 01443 224407 or via the company’s website.

Mark Lee is consultant practice editor of AccountingWEB. He also facilitates The Inner Circle group for accountants, entertains as a conference speaker on ‘How to STAND OUT and ensure you are remembered, referred and recommended’; and is chairman of the Tax Advice Network of independent tax specialists providing help and support to smaller practices.

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Replies (33)

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Man of Kent
By Kent accountant
31st Jul 2014 12:00

Statutory demand

Only ever had one debt where client was putting me on the long finger.

£1,400 debt.

Finally got fed up and served a statutory demand - only cost £60 plus vat.

Debt paid inside a week :)

I used Credit Control Solutions

Excellent service.

I'm not connected to them.

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By ShirleyM
31st Jul 2014 12:24

Haven't had a bad debt in years, so ....

I can't pass any business to Steve.

Do you use him, Mark, or is this a freebie promotion for a pal?

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Mark Lee 2017
By Mark Lee
31st Jul 2014 17:09

Sorry. Clearly not written with you in mind Shirley

I met Steve at Accountex in May and suggested he might have something interesting to say to Accountants who may want to help clients if any of them ever suffer from slow debtors. Interview focused on accountants themselves in an effort to be helpful

Mark

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By JCresswellTax
01st Aug 2014 09:23

Good article

And very good interview Mark/Steve.

I do agree with what he saying, which is basically 'stick to what your good at' !

And I normally tend to agree with this theory.

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By Flash Gordon
01st Aug 2014 09:52

Yes but

Here's a novel idea - get your money up front before you do the work and then you have zero risk of a bad debt. Crazy or what? I'm amazed that no-one's come up with it before now! Oh wait.....

Bad debts in this day and age.....

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Replying to gainsborough:
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By Ken of Chester le Street
01st Aug 2014 11:40

up front

I've retired, but I tried a scheme of payment up front. Or standing orders, half in front and half in arrear. Neither worked, because clients regarded it as a ceiling, and the less scrupulous ones wanted extra meetings and advice outside the cost of the payment.

 

Then I gave a 5% discount for payment within a week. (It was built into the charging rate). It worked a treat.

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Replying to gainsborough:
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By kellyanstee
01st Aug 2014 16:07

Budgets

Flash Gordon wrote:

Here's a novel idea - get your money up front before you do the work and then you have zero risk of a bad debt. Crazy or what? I'm amazed that no-one's come up with it before now! Oh wait.....

Bad debts in this day and age.....

If the job went over budget, perhaps some clients would be reluctant to pay any further fees to account for the extra time to do the job.

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Replying to andy.partridge:
By ShirleyM
01st Aug 2014 16:57

Simple solution

kellyanstee wrote:

Flash Gordon wrote:

Here's a novel idea - get your money up front before you do the work and then you have zero risk of a bad debt. Crazy or what? I'm amazed that no-one's come up with it before now! Oh wait.....

Bad debts in this day and age.....

If the job went over budget, perhaps some clients would be reluctant to pay any further fees to account for the extra time to do the job.

Fixed fee agreements are for a fixed amount of work. If extra work is required you get agreement (and payment) before you do the work ... or they can choose to do the extra work themselves to save money.

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Mark Lee 2017
By Mark Lee
01st Aug 2014 10:06

I agree Flash

But even if we can all do this, how many of our clients do it?

Mark

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Replying to Vaughan Blake1:
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By Ken of Chester le Street
01st Aug 2014 11:43

reply

please delete

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By ireallyshouldknowthisbut
01st Aug 2014 10:06

.

Its good generic debt collection advice, the sort I give to me clients, but as Flash says I simply cant understand accounting practices who have cashflow or debt issues. 

 

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By ShirleyM
01st Aug 2014 11:12

Mostly ...

... the clients with large debtors provide goods/services to large companies who take the mick, and it's either put up, or shut up. The large companies dictate terms and if you want their work you have no choice in the matter.

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By Matrix Forensic
01st Aug 2014 12:16

Debt collection from Government agencies

One area of great difficulty for my practice (we are forensic accountants), is that a large proportion of the work that we undertake is in the criminal field, which means that it is invariably paid from the public purse (i.e. Legal Aid Agency, or Courts etc).

Despite the Government's policy of paying within 30 days, this is far from reality and it is a time consuming battle to get payment within a reasonable time. 

As a matter of policy, I now include on all my invoices reference to The European Directive 2011/7/EU on Combating Late Payment in Commercial Transactions, as well the Late Payment Of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002. 

Does it make a jot of difference...what do you think?

I have also resorted to Statutory Demands - principally against solicitors - these tend to work a treat!

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Replying to Wilson Philips:
By SteveThornbury
01st Aug 2014 12:32

Well Done!

Sounds like your on the ball!

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Replying to Wilson Philips:
By SteveThornbury
01st Aug 2014 12:35

Well Done!

Matrix Forensic wrote:

One area of great difficulty for my practice (we are forensic accountants), is that a large proportion of the work that we undertake is in the criminal field, which means that it is invariably paid from the public purse (i.e. Legal Aid Agency, or Courts etc).

Despite the Government's policy of paying within 30 days, this is far from reality and it is a time consuming battle to get payment within a reasonable time. 

As a matter of policy, I now include on all my invoices reference to The European Directive 2011/7/EU on Combating Late Payment in Commercial Transactions, as well the Late Payment Of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002. 

Does it make a jot of difference...what do you think?

I have also resorted to Statutory Demands - principally against solicitors - these tend to work a treat!

Well done, sounds like your on the ball!

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By Thaya10
01st Aug 2014 12:19

Good article but would have been enormous help if it included some average costs etc. I have a client who owes me £2,400. How much would it cost to collect this?

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Replying to bernard michael:
By SteveThornbury
01st Aug 2014 12:31

Average Costs

Thaya10 wrote:

Good article but would have been enormous help if it included some average costs etc. I have a client who owes me £2,400. How much would it cost to collect this?

We work on a no win no fee basis and the take 15% of what we collect. We apply charges under The Late Payments of Commercial Debts Act. Feel free to contact me in the strictist confidence, should you wish to discuss it further.

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Replying to Brend201:
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By Thaya10
10th Aug 2014 14:53

Many thanks, Could we have your contact details please?

 

Regards

 

Thaya

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By SteveThornbury
01st Aug 2014 12:20

Thanks

I just wanted to say thank you for your comments.

As Mark said we both spoke at Accountex & met up there. We then met up later to do this interview, with the aim to help accountants, and their clients, with some generic debt recovery advice.

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By johnjenkins
01st Aug 2014 13:44

Hey Mark

This must be a reasonably good article because you have a quite varied response.

The professions by definition should never have debts. However I have noticed over the last 3-4 years bills were getting paid slower than they had previously been. So I spent a couple of days chasing.

I think the answer is that if you have large or slow moving debts DO SOMETHING. Hard core debtors should be limited to 30 days.

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Replying to johngroganjga:
By SteveThornbury
01st Aug 2014 14:23

Do Something

johnjenkins wrote:

This must be a reasonably good article because you have a quite varied response.

The professions by definition should never have debts. However I have noticed over the last 3-4 years bills were getting paid slower than they had previously been. So I spent a couple of days chasing.

I think the answer is that if you have large or slow moving debts DO SOMETHING. Hard core debtors should be limited to 30 days.

Exactly Hey Mark - Do Something! Here's my video on that very point. (Filmed at Accountex)

https://www.youtube.com/watch?v=I78auLogcgs

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By johnjenkins
01st Aug 2014 15:55

No disrespect Steve

but the video was boring. Factual, yes. Then again (I have done credit control work) I don't really think that you can make debt collection an interesting subject.

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Replying to lionofludesch:
By SteveThornbury
01st Aug 2014 16:50

Videos

johnjenkins wrote:

but the video was boring. Factual, yes. Then again (I have done credit control work) I don't really think that you can make debt collection an interesting subject.

Don't know what to say as you have answered your own question!!

Maybe a silly hat or something for next time???

(Did you look at any other of my videos?) https://www.youtube.com/user/ThornburyCollections

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By HUGH W DUNLOP
01st Aug 2014 20:38

Who collects your debts?

I DO. All will be revealed soon.

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By redboam
02nd Aug 2014 06:53

Forewarned is Forearmed

The best way to avoid a problem, be it for debt or anything else is to avoid it in the first place. Although the procedures are pretty simple it sometimes pays to be reminded of that, which is why we always recommend that our SME clients take a look at this:  http://www.figurewizard.com/managing-credit-control.html

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Chris M
By mr. mischief
03rd Aug 2014 09:22

No-one collects my debts.  71% of my book is standing order.  The rest can never build up more than £500, if someone really wants £500 of free accountancy from me then fine I am not going to bother chasing it.

People I see as a credit risk I don't deal with other than on payment up front.

Average debtors'  days = under 10.

Bad debts / sales in lifetime of business = less than 0.5%.

Job done.

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By SteveThornbury
05th Aug 2014 13:01

Gold Star!

Well done mr.mischief, looks like your running a very tight ship there.

Many could learn from that.

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By AndrewV12
06th Aug 2014 09:57

Reasonable costs

A bit double edged this, the cost of solicitors and debt collecting agencies, I bet these costs can double a debt over a 12 month period, is it all fair, apparently so.

 

It all comes down to the relationship between the Accountants and their clients, what is the relationship, friends, strictly business or something else or is every relationship different.   

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Replying to Brend201:
By SteveThornbury
02nd Sep 2014 11:02

Costs

Of course costs should be a factor, but at the moment you have 100% of nothing.

 

Thornbury work on a No Win No Fee basis, so if your debt is uncollectible you'll pay us the grand total of £0.00!

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By Sam Beckett
06th Aug 2014 17:18

Great article

Thanks Steve - great interview.  Of course we all aspire to having a minimum of unpaid debts, but it can happen!  I can really see the advantage of engaging a third party to handle the debt collection, so that we can concentrate on maintaining our adviser/client relationships.  Knowing Steve from networking events I can also confirm that there really is a step away from the that old stereotypical image of the debt collector -these days its a professional service in its own right.  There are some great tips here to pass on to our clients too!

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By johnjenkins
07th Aug 2014 09:05

We could take a

leaf out of the farming community. Your handshake is your word. Mind you most farmers have a varied selection of weaponry. 

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By HUGH W DUNLOP
10th Aug 2014 19:55

Bad debts

As I am semi retired and deal only with sole traders, it is stipulated in my letter of engagement that accounts, VAT, and wages, will be prepared from the information given, but will NOT be filed with HMRC under any circumstance until payment is received and the funds cleared through my bank account. If they do not pay, I may not have received payment for a few hours work which could escalate if they have the temerity to ask me to carry out any more work for them, but I am sure HMRC are quite capable of collecting fines for submissions not made.

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By Lizgm
11th Aug 2014 14:44

Bad Debt

We have very little bad debt and work well with our clients.  However on the rare occasion when we have had a bad debt ( 3 in 11 years ) we have used Steve from Thornbury Collections.

His attitude and approach to debt collecting is professional, ethical and impartial.

Anyone looking to use a Debt Collection Service should look no further.

Liz Gibbs-Murray

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