adminShelter Chieza Change Management
It is not just street talk to hear people say that “cash is tight” everyone is chasing after the few dollars in circulation, from the informal to the formal traders. I parked at a shopping centre at one time, in the split of a second, my wiper blades had been changed, a new set of reflectors had been stuck on my bumpers and my car was already being polished.
Security concerns aside, these guys were really aggressive. As any normal person would, I let out a massive fit and rant on the grounds of harassment.
I initially refused to pay any of them. As I reversed off I had a change of heart.
Of course, this was all mind games type of marketing. These are informal traders making an effort to sell their wares.
The aggressive is the one that wins because there is just not enough liquidity flowing in the economy.
I ended up paying a few dollars for it, but it got me thinking just how desperate each and every business is to get cash in this economy.
What this behaviour creates is an environment where business owners have no option but offer their products or services on flexible payment methods. And when that happens the chances of defaulting are very high. You cannot afford to operate your business without a clear debt management policy.
I remember our company faced a huge strain when 40 percent of our accounts receivables fell into the above 12 months category.
Now that’s a huge margin, that money could have been used for other capital investments.
Bad debtor management has a domino effect, money must freely move into and out of the business.
Debt collection is not easy it can be very frustrating. At one time I visited a debtor who looked at me and said: “Madam, we last had a steady flow of business eight months ago and we are not sure when we will receive payment. I looked at this pompous man and requested for a date when I could come back for the payment and he simply could not give me a date.
“Can you even plan with such a person? I could not help thinking that this was the same man who came to my office literally pleading and begging for service.”
As a company, are you be able to articulate and identify factors that assist you determine a debtor’s repayment potential.
You need to be able to prioritise your collection strategy using amounts owed, days late and repayment potential.
Relationships are key to debtors’ management, if your accountant is in the habit of phoning debtors with no firm follow-ups, then you are in trouble.
Utilise tools that will help foster positive relationships with those from whom you’re trying to collect.
You need to have ways of applying greater pressure on debtors, beware that some get offended when a little pressure is applied.
I have observed that most receivables that are three months in arrears have a better chance of being paid, the longer they stretch the less chances they are of them being paid. Ensure that account statements should be sent out on the first each day of each month to every customer.
Reminder phone calls are inevitable, make sure you have the details of the flow of invoices, the number of signatures and approval chain that the invoice has to go through. Provide the adequate information to enable the quicker processing of invoices, such as VAT number, addresses and order numbers.
The legal route is a necessary evil, have ways of protecting your company from huge losses by engaging a lawyer who can assist in debt collection.
It is acceptable that some debts may be too much to repay in one payment. You may need to accept instalments where possible clearing the debt within 12 months.
Don’t be too excited when a customer knocks on your door and promises overwhelming business.
Make sure you do a creditworthiness background before you provide them with a service.
A track record of where they have had accounts is important. Make sure that your credit department produces report of the amount of outstanding debt, broken down into debt type, this must be passed to the department concerned for verification and assistance in recovering the debt.
“Aluta continua” to wise business entrepreneurship.
Till next week, may God richly bless you.
Shelter Chieza is an advisor in management issues. She can be contacted at [email protected]
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