2016 is looking like a tough year for many of your clients. Debt recovery specialist and lawyer Roger Mendelson knows a thing or two about debt recovery, as his firm Prushka is the largest (non-listed) debt recovery firm in Australia. In keeping with our core mission, we bring thought leaders to the Hub for the benefit of business-minded bookkeepers. Roger is one such expert. He offers ideas to help the business decision-maker improve their cash flow, particularly in ‘tough’ conditions.. And by the way, what a great way for a bookkeeper to consolidate her position as a ‘trusted advisor’!
We agree with Roger’s premise that 2016 is proving to be a tough year. Roger goes on to say:
‘As a bookkeeper, you are at the coalface in terms of picking out clients which are at risk, seeing the mistakes they make in the way they invoice and collect their accounts
‘You can really add value to the service you provide by giving them constructive advice.
‘In order for you to complete a set of accounts, you must have a good understanding of the billing and invoice system.
‘In doing this, you will see whether or not there is actually a system, whether or not it is consistently followed and whether there is a looming problem.
‘If your client cannot clearly explain to you what the system is, who is responsible for operating it and if the person responsible cannot quickly produce a summary aged debtors’ ledger and a detailed report detailing all outstanding accounts, then you know that your client has a problem.
‘It is part of your job to not just prepare the accounts but to provide advice and this is an excellent place to start.
‘As a check, look at the accounts which are over 60, 90 days 120 and over. If the client’s business has 30 day trading terms then the amount of debtors outstanding should, as a rule of thumb, equate to approximately one twelfth of the total annual billings.
‘In most businesses, the amount outstanding is far beyond what it should be. If the balances over 120 days are significant and if they have not been outsourced for collection, then alarm bells should ring.
‘The following basic steps should be explained to your clients:
1. One person should be appointed to have authority and responsibility for the billings and collections function and should be given sufficient power and resources to handle this task.
2. There must be a written collection system, with defined steps which would begin with preparation of the invoice, telephone follow up prior to the end of the trading terms period, asking “is there any reason why this account is unpaid”? There should be no more than one statement and where the customers/clients are individuals or consumers, accounts and statements should preferable be sent by email.
3. For larger amounts of credit being granted, a Credit Application Form should be completed by the customer and if the customer is a company, it should provide guarantees from its directors. (Download a free Form from https://www.prushka.com.au/forms/req_forms_CreditApplication.cfm)
4. The trading terms of the business should be incorporated in the Credit Application Form and should be acknowledged by the customer.
5. A crucial term to include in the trading terms is a default provision that provides that if the account gets outsourced to a debt collection agency or lawyer, the customer will be liable for all collection and legal costs on an indemnity basis. Thus, all collection and legal costs can be added to the amount the defaulting customer has to pay.
6. A monthly status report should be provided to your customer, which provides an overview of the effectiveness of the billings and collection system.
7. Depending on the industry, normally accounts which are 60 days or more beyond the client’s trading terms should be outsourced for collection to an external debt collection agency.
Prushka is the Bookkeepers Hub (TBH) preferred debt collection agency. See the Bookkeepers Hub Toolkit here for benefits available to members. Our contributor, Roger Mendelson CEO of Prushka Fast Debt Recovery Pty Ltd and is Principal of Mendelsons National Debt Collection Lawyers Pty Ltd. Prushka acts for in excess of 53,000 small to medium size businesses across Australia and operates on the basis of NO RECOVERY – NO CHARGE. www.prushka.com.au. Free call 1800 641 617. The writer is also author of The Ten Mistakes Businesses Make and How to Avoid Them and Business Survival, both published by New Holland Publishers.