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Why debtors aren’t paying you – and how to solve it

“Bad debts have always been there. There’s always been those recidivist offenders that don’t pay and say business in tough. They tend to use that excuse far more when the economic climate is more difficult, but they’ve always been bad payers.”

In the market that we are currently experiencing in New Zealand, and globally, everyone is noticing a change in the debtors’ positions, and I don’t see it letting up any time soon. Now more than ever, it is important to get debtor’s processes up to date.” notes Andrew Kingstone.

Andrew is the managing director at Gravity Credit Management, and a Chartered Accountant by trade. He notes that although there is a long list of possible causes, he keeps seeing the same one’s surface time and again.

Business owners are increasing finding that debtors are more inclined than before to allow their accounts to become overdue. Bad debtors accounts places cashflow strain on businesses and increases the amount of administration required when business owners would prefer to focus on getting on with business and are already struggling with staff capacity.

Not keeping a watchful eye

According to Andrew in many cases where debtors accounts become an issue, one of the most common causes was not noticing early on that there is an issue. Many businesses don’t pay attention to their debtors up until the point where they are facing financial difficulty, or their account is beyond agreed terms.

Updating terms and conditions, keeping up with legislative changes

It is too late to see how much water your terms hold when you want to enforce them. “When I get approached by any new client, one of the first things I’ll do is look at their terms and conditions and give suggestions around it. I’ll look at a copy of their invoice to ensure the required information is present and correct,” explains Andrew. “I also visit the client to discuss and understand how things work in terms of the process to get from the invoice, through to collection.”

Enforcing terms and conditions and personal guarantee

While collecting debts we see often where debtors draw a line through the personal guarantee clause in the agreement. In this time and this market, you need to think very carefully whether you want to forego that now, because you may not be able to collect on it later.

Resolving disputes timeously

Here Andrew notes that, “You don’t want to wait until the 20th of the month to have that discussion. You should intercept that problem very early on, so that when the 20th of the month comes, there’s no problems with payment.”

When to seek assistance

Keeping a close eye on debtors is usually best done by the business itself as it forms part of maintaining the customer relationship. Andrew has however found that once debtors fail to meet the terms set out in the terms of trade and credit application, and the relationship is at risk, the quickest and easiest solution is usually to outsource the collection to an impartial party like a debt collection agency.

Getting a collection agency to assist with debt collection frees up time and energy that the business owner, or employees, could be spending more productively. According to Andrew quite often the time spent trying to recover bad debt just doesn’t justify the money that comes in. At the same time the relationship between the company and the debtor is not compromised since an impartial third party assists to manage payment options and terms.

Why business typically don’t want to get debt collectors involved.

Most commonly businesses fear the cost of debt collection. Business reputation is very important, and no one wants to end up in the press for all the wrong reasons, least of all for engaging with an agency which engages in threatening or unprofessional conduct. We treat your debtors as our own as ultimately, they are.  The other concern is only a true concern when credit conditions don’t allow for collection fees. Even in instances where collection cost would be deducted from the moneys collected, Andrew notes that, “In most cases the cost of the collection is still preferential to the cost of valuable time and resources that would otherwise have to come from the business.”

ALSO READ: Why do my invoices get rejected and what does that mean for my business?

Andrew has assisted hundreds of clients with debt collection and him and his team at Gravity Credit Management services a client base of national and international corporations such as trading banks, internet service providers and retail agencies to collect outstanding debt.

For assistance with debtors’ processes or debt collection, simply fill out the short form below and the Gravity team will be in touch shortly.

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misconceptions about debt collection

The fallacy’s surrounding debt collection agencies and what’s true in reality!!

Debt collection agencies are a stoic resource in the fight against late payment and bad debt – after all its tried and tested. That said there are several misconceptions and misbeliefs about debt collection services, often preventing many from engaging with those that offer the services.

We at Gravity Credit Management have been providing collection services to our clients for in excess of 20 years. There are several misconceptions around debt collection and we know that, by employing the right debt collection agency, you have a very good chance of getting back what you’re owed. We treat your debtors as our own as ultimately, they are!

Misconception about using debt collection agencies

Misconception: It will damage my brand / reputation

Reality: The key is finding a debt collection agency that will respect your brand as much as you do. Also, by introducing a debt collection agency as part of your normal credit control process, one can ensure the agency complements your in-house collection efforts while using their expertise to help you get paid sooner. It really is an extension of your own collection processes.

Misconception: It’s costly

Reality: Many debt collection agencies work on a success-only basis so they will only get paid once they have collected your debt. This will likely be in proportion to what they successfully recover – and is typically based on a commission percentage. The price of our services will be minimal compared to the amount you would lose if you had to write the debt off as uncollectable, and the cash flow implications of it remaining outstanding for longer. Additionally, we are very successful in collecting late payment and interest fees – which can go a long way to covering any additional costs of collection.

Misconception: It’s only for very old debts

Reality: Established research shows that the earlier a debt is referred, the more likely it is to be collected. Instead of wasting valuable time chasing debt for months on end in-house, why not hand it over and see if a debt collection agency has better results? You can even set up an ongoing debt collection facility where the agency will take on any debt which reaches a certain age – a number of clients refer automatically at 120 days, but this is your choice. This helps to maximise their recovery and remove the time and resource burden on your business.

Misconception: Customers will dislike it

Reality: A good debt collection agency understands that maintaining your customer relationships is extremely important and will take your brand as seriously as you do. At Gravity Credit for instance, our preference is polite but persistent engagement when it comes to debt collection, we reaffirm the obligations to pay while explaining the adverse impact their delays will have on our client and their credit rating (where applicable). It is true that some will not like the fact you’ve engaged a debt collection agency, you’ve only done so because they haven’t paid you in the first place and you are within your rights to do what you can to get what’s rightfully belongs to you. This also often gets the business thinking longer term about the relationship with the customer and if you want to continue to be part of this.

Misconception: It’s only for large companies

Reality: We have a significant number of small businesses that refer their debts to Gravity Credit every day because they recognise that chasing late payment is not their expertise and a third party like us is likely to have better results. When you have a small team it’s unlikely, you’ll have the time or resources to chase late payment without having to neglect key business tasks but with a portion of the collection process managed respectfully by another party you could free up time to concentrate on growing your business and still get paid.

Misconception: A solicitor will be more effective

Reality: The truth is that although the legal system can be useful and solicitors can be useful, it can be very costly and time consuming – often on a time and attendance basis. A good debt collection agency like Gravity Credit will prioritise recovering the unpaid sums by working your debtor, preserving your valuable relationship, before taking the legal avenue, and only when required.

A Gravity Credit Management we publish and record topical videos associated with the debt collection and credit management space. For more credit control advice or you have a concern about your collection process within your business then please get in touch. I would welcome a call or email to discuss.

You can get in touch with  Andrew Kingstone, (Director at Gravity Credit Management) direclty on 021987622 or email [email protected], if you have any questions or need credit control advice.

Andrew Kingstone

Sales in Lockdown?

Very early in my career in B2B sales I heard an interesting quote: “Nothing happens until somebody sells something” – it was at a Sales Training company where I briefly worked as a Sales Consultant on the phone. I wasn’t that good at it. The product I was selling was good, I genuinely believed in it, but what I didn’t know at the time was how hard selling over the phone really was – especially if you haven’t had to do it before.

I didn’t know how to connect with the customer. I didn’t know how to introduce the product into a conversation. I didn’t know enough about our competitors to be able to sell against them. I just didn’t have a clue.

I don’t struggle with this anymore, working at that company was probably one of the most valuable experiences I ever had and it came with a few perks:

• I got free corporate sales training (3 different types)
• Japanese lunches on Fridays
• 6 months work experience selling exclusively over the phone, cold calling

I didn’t know at the time, but that last one turned out to be the single best training I have received in sales.

Just the thought of cold calling can send a shiver through a sales person’s spine, we’re really at our best and at the top of our game when we’re face to face with a client, belly to belly. They can’t hang up on you if you’re IN THE ROOM, but over the phone you will hear the slam and dial tone more than you would a human voice… beyond a grunt.

Door knocking will probably be the most preferred way for most sales people to acquire new business, still cold, but at least you’re on site with the client and your charm can get you much closer to the room.

But in lockdown, live face to face meetings and door knocking is out of the question, making a phone your one and only tool and perseverance your only asset.

So when lockdown struck I knew what had to be done, back to basics cold calling, getting your patter just right and hoping for the person on the other end to engage…. Suddenly cold calling couldn’t became easy. People are stuck at home, bored, little social contact; and taking a call from the salesperson became an easier task, they actually wanted to talk. Sure, I still had to deal with a few dial tones here and there but on the whole a very positive experience.

I was able to sign eight new clients and have close to a dozen meetings lined up for when we go to red light!

So, if you are stuck at home, you’re in sales or trying to get sales, grab the phonebook and your phone; you might be surprised by the results.

(I said phonebook because it sounds better than “start googling businesses” which btw is what you should be doing).

Paul Roukchan
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