Martin Hughes

At the request of a bank we went to see a client of theirs who was giving them concern regarding their cash flow.

We went to clients and checked:

· The Sales ledger

·  Age of debt and values

·  Margins

·  Stock control

· The Purchase ledger

We found that the client had become over reliant on one customer.

Unfortunately, this customer was a very large national who dictated their payment terms (and then exceeded the agreed extended terms) and to whom the goods were sold at very small margins.  Due to the size of the customer, the client felt unable to take action against them.

As a result the client was unable to obtain goods, as they were on stop with their suppliers, which meant that they were not able to fulfil orders from their other customers who provided far greater margins.

It was absolutely clear to us that the business would fold within three months unless they took immediate steps to rectify the situation.

The one action needed was to stop supplying the offending large customer and to obtain settlement of their outstanding invoices.  The client decided to follow our advice.

We were advised by the bank some three-to-four months later that there had been a dramatic turnaround in the fitness of the company.  They were now concentrating on supplying the smaller companies on higher profit margins and as a result did not have the same cash flow worries and the profitability of the company had increased.

We received a telephone call from the Credit Manager of an international branded clothes business.

They had a debt of £120k with a major retailer in Mexico City.  Despite their best efforts, they had been unable to obtain settlement.

In Mexico the legal process can be long winded and expensive.  It is generally accepted that most proceedings for the recovery of debt will take approximately one year, without adding any appeal processes.

The matter was urgent as investigations revealed that the Mexican Government had also issued proceedings in the courts for unpaid taxes.  A different strategy was required.

We contacted local agents, previously used by us, and within three hours we had their representatives at the retailer walking round and to all intents and purposes doing a stock take.

The retailer was a sole distributor of our client’s products in Mexico, and as such had large signs both inside and outside the premises with our client’s logos and brand names.  We ensured the retailer was aware that they were now in breach of contract and not only would we remove all of our goods but we would also insist on the removal of all signage.

There followed a long procession of calls and emails between us, our agents and the retailer.  Within three weeks of instruction to us, our client had received payment in full.  This demonstrates how a pure legal process in a foreign country may not be the best option, and very often may be the lazy option.

We are unaware how long it took for the Mexican Government to get paid for their claims.

Whilst acting for a client (a national manufacturer of boilers for the domestic market) we noticed that many of the debts being sent to us were either very easy for us to collect, or had simple disputes which really should have been resolved prior to passing them to us.

We discussed the situation with the Credit manager, and we agreed that he would visit his company and carry out an audit of their internal credit control procedures.

It was soon obvious what the problems were.

· There was no query resolution system in place allowing problems to be identified and followed up in a timely and effective manner

· Dunning letters, rather surprisingly, were not despatched to an agreed credit cycle and were to say the least ineffectual in their content

· There did not appear to be an agreed Credit Policy in place regarding returns and in many cases debit notes which had been initiated by their customers

We devised a manual system for him regarding query resolution, as he did not have a software application which would deal with this.

Dunning letters were rewritten with an agreed credit control cycle to escalate the debts.

A procedure was written to identify and deal with the returns and debit notes. This part filtered into the query resolution system.

Not surprisingly, the volume of work received from the client reduced to a trickle. We did, however, retain a loyal client who continued to pass work of a more tricky nature to us.