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?
ML - Accountants 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.
ML – Clearly 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.
ML – I 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?
ML – Who 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.
ML – Where 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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