Why Plumbers Need to Control Credit

You would think that reducing credit comes down to getting paid. Contrary to popular belief/opinion, controlling the amount of credit you give to your customers is not about money. It’s about something else.  Sometimes the reason plumbers leave too many invoices out and open for their customers is due to feeling sorry for them. It’s true. Sometimes plumber employ sympathy, when they should be employing empathy.

This is one of the mistake many plumbers make with credit. Here is an illustration of the difference.

Sympathy – You can understand to a certain extent; but, you have never been there personally.
Empathy – You have been there yourself, so you know what it feels like.

If plumbers had more of an understanding of these two things, there would be less credit. Now, let’s take a look at a few other things.

Saying No to the Customer

This is a tough one for plumbers. Some plumbers happen to be very weak. Customers can sense this. They can also use this to their advantage. Plumbers need to learn the “art of saying no.”

What is the main reason for not saying no? It’s becomes more personal than anything. It’s usually not about the money, as I stated above. It’s usually a personal emotion that gets in the way.

People Don’t Like No

This is so true. Some customers will even turn on the water works. They do this only to take advantage of the circumstances. Most of the time the customer can pay, why else would you have been called out. These customers do not want their plumbers to know this.

You will get this with even your most reliable customers. Some feel that if they know their plumbers, he/she will extend their credit. This is not always the best option to use. Best friends even take advantage of one another at times. The same logic applies here.

How will it look if you say no? How will your customers feel about you if you say no? These are probably the thoughts that run through every plumber’s mind.

What the Manual Says and What Really Happens

Almost every manual out there would have you believe that customers will be “understanding” of this. This is complete nonsense. What actually happens is something completely different. There have been customers who have thrown tantrum for not having their credit extended. Their have been complaints filed against plumbers for this happening.

Not all customers are nice and understanding. Sometimes you have to use your best judgement for the situation. Does this question/statement sound familiar?

Do you mind if I pay you after the delivery is made?

Delivery is made. Payment is made too. Ever notice how it’s only a small amount? This happens a great deal. Then the customer will say to put in “on their tab.” Have you ever noticed something. The tab is growing and their payment is not coming down.

Customers do Not Like to be Chased

Credit chasing is one method plumbers use to get their money back on open and extended invoices. Well, customers do not like this either. They take this method personally. If you haven’t already picked up on it, the relationship is very one-sided.

These are the normal responses plumbers will hear?

1)The person who takes care of it is away.
2)I’ve just been so busy over the last few weeks. I promise, the money will come tomorrow.
3)Can you give me just a little bit more time

If you haven’t noticed already, these are also excuses. Plumbers hear these on a regular basis. These excuses are another reason why a plumber should never be so considerate with the credit.

Customers Aren’t Organised

This is another excuse plumbers will hear. The worst part is, many pf them buy into it. The customer will make it out to be the plumber’s fault and personalize it.

Bottom Line

This one is for the all the plumbers doing business out there. If a client can not pay in-full when he/she is supposed to, do not extend the credit. It’s going to hurt your business. All of the above are reasons how some plumbers have gotten cheated in the past by clients. Do not let this happen to you.

No matter what the manual says, credit is not a good thing. Invoices will be out-of-control. Too many sloppy mistakes. Only employ the credit extension if there is an emergency. If there is an emergency, get proof from the client beforehand.

My hope is that this article helped some of you out today. Please do not be afraid to tell a customer no. You might lose a client or two because of this; but, your bottom line will be more secure.  James run Doran Plumbing and Heating in Dublin.

Insurance Guarantees and Indemnities for Credit Controllers

insurance risk

insurance riskWhere risk factors may normally prevent you from trading with a specific firm, requesting security in the form of a guarantee from third party might perhaps provide an answer. With a sole trader or partnerships, liabilities are infinite; nevertheless their financial standing may be such that some form of security is called for. In the case of a limited company guarantees could be requested from a:

•           parent company
•           subsidiary or associated company
•           director’s personal guarantee

Guarantees can cover both trade and retail finance transactions.

Manufacturer’s warranty

The law states that all goods sold must be of merchantable quality and able safely to carry out the tasks they were manufactured to perform. The British Standards Institute ‘kite mark’ symbol confirms that safety guidelines are adhered to. Any guarantee or warranty offered by a manufacturer cannot infringe on the rights the buyer may have under the Sale of Goods Acts.

Banker’s guarantees

Instruments suitable for trade credit are the first and last listed below. With the last item a customer would use their own cheques, arranging for their bank to certify payment by stamping the cheque and signing it; this certification guarantees payment to the supplier. The first item listed is similar to the other method, except the bank uses its own cheques. Other forms of guarantee offered by banks include:

•          banker’s draft
•           travellers cheques
•           eurocheques
•           cheque guarantee cards
•           certified cheques

Whilst it was an exemplary service, certified cheques are rarely seen today, having been replaced by banker’s drafts.

Other forms of guarantee

Of course insurance is a form of guarantee which you can purchase. Standard policy documents affirm that the insurer will reimburse you against loss when certain previously expressed conditions arise. There are forms of guarantees which include:

•           export finance
•           credit insurance
•           insurance to cover redundancy, accident or sickness

Not until the later part of the 19th century were restrictions lifted which prevented companies trading with limited liabilities.

All limited companies in England and Wales must be registered with the Registrar of Companies at Companies House, Cardiff. Information required to be lodged under the varying Companies Acts can be inspected there or in London. This includes:

•           articles of association
•           formation details
•           annual returns — lists of shareholders and directors
•           annual accounts

Details of companies registered in Scotland and Northern Ireland are filed in Edinburgh and Belfast respectively.

Types of companies

Until the Companies Act of 1967 many small companies were classed as exempt companies, which meant they were not required to file annual accounts. However, this Act removed those privileges, and now all registered companies irrespective of size are obliged to file accounts with their annual returns. Now companies fall into two distinct categories.

Public limited company ( Plc)

Subject to meeting the criteria laid down in the Companies Acts Plcs may invite investment from the public, providing they meet the additional regulations of the Securities and Investment Board, Plc shares can be traded on the stock exchange, via broking houses.

Private limited companies

Shares of these companies cannot be openly traded in the same manner as Plcs, but they can be bought and sold by private treaty sale. The rules governing the accountability of smaller and medium sized limited companies change from time to time, but current regulations are available on application from Companies House.

Easy Credit Control Procedures

Credit control procedures differ from credit control policy in that the procedures is the implementation of the policy.  For example, when something happen (a) is the response to that something.

Having a clear set of credit control procedures ensures that your credit control department runs smoothly.  The following is a list where procedures should be thought about and written down they help to reduce the cost of credit.

Late payment

this is always the most obvious and important within any credit department.  What will you company response to late payment be.  This is a list of options: Continue reading “Easy Credit Control Procedures”

Making Sure You Get Paid on Time

It is all very well selling the best goods or services, but if you do not get paid what’s the point? To help you ensure that you are paid on time, we shall examine:

  • pragmatic collection methods
  • the steps you can take to prevent late payment

Preventing Late Payment

The average time span in the British Isles from the point of sale until receipt of payment is 77 days. Considering trade credit terms are usually 30 days, this is indeed a poor record. Some companies pay quicker than average, so some companies are paying later than the 77 days quoted. Allowing your customers to dictate payment terms leads to many businesses failures.

So what can you do to reverse this trend? You should:

  • take the initiative with collections
  • start your collection practices early
  • avoid giving your customers an excuse to delay payment

You have seen what credit can cost your business. Preventing accounts becoming overdue is far easier, and offers better business prospects, than chasing for late payments.

Collecting as a customer service

Your first duty is to your business and employees. You can eliminate the obvious credit risks, but you will not eradicate all of them. The next step is to ask for the payment due to you. There is nothing shameful in expecting to get paid for the goods or services delivered. You pay your workers at the end of every week or month for their labour, without them having to demand it. So why should you wait for your money? Some businesses deliberately retain payment until they are asked for it. So the earlier you start asking for payment each month, the faster you will be paid.

Removing excuses

Starting your collection procedures two or three weeks before payment is due will not upset your customers providing you do it tactfully. Your first telephone call, say a few days after your customers have received their invoices must:

  • confirm the goods have been delivered
  • establish there were no shortages or breakages
  • agree the invoice totals are correct
  • confirm the invoice will be processed before the customer’s cut-off date

Note that the aim of the conversation early in the collection cycle was not to demand or ask for payment. But you did establish that your customer had no complaints, and that they got what they ordered, when they wanted it, and there were no mistakes with the invoice.

If they had stated for example that the invoice totals were incorrect, or only two dozen items were delivered instead of the three dozen which were invoiced, you would have had sufficient time using your customer complaints system to rectify the problem before the period of credit expires. This leaves your customer no option but to pay on time. You have taken away the excuses customers rely upon to delay payment.

Taking a short cut

To keep your sales force contented let small initial orders of, say, up to £500 through, while you are undertaking the credit vetting procedures. Using the above methods will allow you to accept these small risks, while at the same time keeping control of your credit.

Targeting larger accounts

Of course it is not possible to telephone all your customers each month. There simply would not be enough time. One of the ratios of particular interest here, the sales/customer ratio of 80/20 — as 80 per cent of your sales ledger balance will be owed by just 20 per cent of your customers. By concentrating your telephone activity on this 20 per cent you will target the greater part of your sales ledger debt. The remainder of your debtors can be contacted by post, using a series of collection letters known as a letter cycle.

Saving on interest costs

Utilising the above system to prevent late payment of your accounts will give a dramatic boost to your cash flow. If you are operating on an overdraft the saving in interest charges can be substantial. These savings could also be used to expand your business. When using this pre-emptive method of collection, you will find it usually takes three months of operation before the results are achieved. John writes and works for Proforensics a Forensic accounting company in Ireland.

Collections and Methods of Payment for Credit Control

There are a number of methods a customer can use to settle their account. We are all familiar with cash, cheque, postal orders or barter. In this post we shall deal only with payment for standard trade credit terms. Settlement should be in the credit policy of the company.

New techniques

It is important for anyone in business operating credit facilities to keep an open mind about new methods of payment as they develop. This especially applies to credit managers and their staff. You must be prepared to exploit new practices, and not always rely on old and trusted methods. It does not matter what trade or business you are in —by standing still you will miss opportunities to grow, whilst perhaps missing the chance to minimise the risk in your transactions. Continue reading “Collections and Methods of Payment for Credit Control”