Effective cash collection through a positive attitude

Credit has become an effective marketing tool and an essential source of finance to many businesses and consumers. But, both the creditor and the debtor (the client) should be fully aware that credit is granted not only to make a sale possible but also to build and maintain a mutual long-term business relationship between the seller and the buyer, and this business relationship should justify the costs involved in credit. In other words, the creditor is investing money in the debtor and, as any other investment, it should be profitable.

If one were to analyse what is happening in this field of credit management, one would immediately learn that late payments and non-payments are becoming the order of the day more than ever before. This is neither my hypothesis nor a sweeping statement!

Law Courts statistics, compiled by the secretariat of the Malta Association of Credit Management (MACM), indicate not only the magnitude of non-payment but also an alarming upward trend.

During 2004 more than 4,100 court cases were filed at the Civil Law Courts of Malta, comprising of The Small Claims Tribunal, The Courts of Magistrates (Civil), and The Civil Court, First Hall. Nearly 3,000 of these cases were related to non-payments, representing an alleged amount of more than Lm10.5 million.

During 2005, 3,808 court cases were filed in the Civil Courts, and another 1,429 judicial letters were registered between August and December. These cases represent an alleged amount of more than Lm12 million, a 15 per cent increase in the alleged amounts over the previous year.

One should always bear in mind that this is only the tip of the iceberg of the real problem, because firms only go to court as a last resort. In some instances, cases take long to be decided, court costs may be as high as the outstanding amount itself, and even when a claim is upheld, enforcement of court judgments leaves much to be desired.

A more specific, realistic scenario is available to MACM members by the effective mechanism employed by the association in the exchange of credit information between its members. MACM members share factual information pertaining to late payments in the local market, which is vital to assess and monitor the creditworthiness of the clients and debtors, respectively.

Efficient collection practices are nevertheless important to minimise late payments and bad debts. And efficiency in collection practices can only materialise if the credit control personnel are themselves positive about cash collection.

Unfortunate attitudes still persist in many local businesses, such as the perception that collecting cash is offensive and may damage a customer relationship. It cannot be offensive to ask for what is rightfully and legally ours, nor can it damage the business relationship, as the customer knows well that the account is overdue and the awkwardness of the situation, if any, is with him, not with the seller.

So credit controllers must possess a positive attitude towards cash collection and although the following ten clichés or statements may be seen as rather negative by the sales teams, they should help improve the attitudes of the credit controllers and increase collection efficiency:

A sale is not a sale until it is paid for. Firms are not charitable institutions. They are there to make a profit and this can only happen if they are paid, and paid on time, for what they have sold to their customers.

Every penny the firm earns comes in through us. The credit controllers are as important as any other employee of the firm. Having an efficient credit controller would result in better cash flow and profitability, the life blood of any business.

Profit is reduced more by slow payers than by bad debts. Credit costs money both to manage and control. Besides, the opportunity cost of the amount tied to credit that is overdue may mean less turnover for the seller due to lack of liquidity and inability to buy supplies.

Collection of cash is highly competitive. Firms compete not only when they sell but also when they collect their dues. It is therefore necessary to invest in an effective credit management information system, such as the system being provided by MACM to its members, to monitor closely the debtors list.

The sooner we ask, the sooner we are paid. Collection efforts should be put right at the onset when the account is due with no reason for procrastination. Being assertive and on time in our collection is only a sign of professionalism.

It is our money; the customer has only borrowed it. The customer knows that the seller has supplied what he had ordered and has legal obligation to pay for it at the agreed due date.

Customers are never genuinely upset by being asked to pay. In business-to-business transactions, collection staff deal with payables staff, who usually follow standard procedures laid down in their organisations. The perception of 'upsetting' the client is hard to grasp as our experience shows that some late payers pretend to be upset as a tactic to get rid of a collection attempt.

Customers respect suppliers with a professional approach. Customers know they have to pay as agreed but credit controllers should have the skills to get the message across, establish a brisk rapport with the customers, work to help their customers, and be confident and knowledgeable.

We believe in first-class service to customers and we expect first-class payment in return. A business relationship between the seller and the buyer, which is important for both, should be sustained not only when providing the service but also when the account is due for payment.

We can't pay salaries or suppliers with sales - we need cash. Sales are obviously crucial, but we need to get paid on time to move forward and expand our business. Sales without cash are only a gift!

This brings us back to the first cliché: A sale is not a sale until it is paid for. Collection needs special people with a committed attitude to succeed in spite of all the obstacles. They have to be outgoing persuaders, not introverted, methodical people who prefer accounting work. Collectors are the only financial people working in the commercial area, interfacing with customers to complete a process started by the sales people.

Good collectors are worth cherishing and rewarding, and to get the best from all staff, training is the most positive investment any company can make. Well-trained, motivated and rewarded collection staff have a dramatic effect on the company's profit performance.

Mr Busuttil is director-general of the Malta Association of Credit Management.

jbusuttil@macm.org.mt