Most businesses encounter debt collection problems from time to time. Good procedures will help minimise the risk of financial loss, explains Director Michael Farrell.
For businesses exploring new markets in preparation for Brexit, it is important to be aware that local payment practices vary from one country to another. The Euler Hermes “2018 Collection Complexity Score and Rating” examined debt collection procedures in 50 countries and found that Sweden, Germany and Ireland had the least complex procedures while the Middle East and Asia Pacific showed greater complexity.
Commenting on the results, Jennifer Baert, Group Head of Collection at Euler Hermes said, “A key rule applies to debt collection: the longer one waits, the greater the complexity and risks.”
This is good advice and applies equally whether you are doing business at home or abroad. Here some key debt collection rules to keep in mind.
Debt collection rules
• Know your customers and suppliers. Conduct credit and compliance checks before embarking on new relationships. This will help you avoid future problems.
• Pay attention to the terms and conditions in contracts. They can protect you if the businesses you deal with fail to deliver.
• Review and update contracts if your business requirements change.
• Ensure that your management information systems are up to scratch. Real time accounting can provide early warning if things are going wrong.
• Ensure that you have correct contact details when issuing invoices. Familiarise yourself with your customer’s payment procedures. If they process payments once a month, you may need to take this into account when raising your invoice.
• Issue invoices promptly and chase payment as soon as it is overdue.
• If disputes arise, try to resolve them quickly. The longer you wait, the more complex they are likely to become.
• If you are unable to obtain payment, seek professional advice. You may need to engage a debt collection agency.
• Consider obtaining trade credit insurance as this will protect you when extending credit to your customers.
When you are expanding into new markets, keep in mind that PKF-FPM can provide you with access to high quality expertise in more than 150 countries through our membership of the PKF International network. For details and to find out more about how we can help, please get in touch.
Michael Farrell l Director