BY: MARY MACKINVEN
Don’t let a day go by once payments are due, before you start chasing a defaulting customer, advises Dun and Bradstreet general manager for New Zealand, John Scott.
“The trail goes colder as time goes on. Some companies pull out every trick in the book to avoid paying. Find the right person in the organization and go straight to them. The company might move, directors change or they go out of business.”
Dun and Bradstreet provides credit reports and information on an overseas company to prepare an exporter for doing business, or later when chasing overdue payments.
In the latter case, it only represents companies that have a contract with their counterparts, not just an invoice. Letters of credit and proper agreements for trade present a case under law, that is, the right to have the money paid or to escalate recovery proceedings if there is a dispute.
DEBT SEEDS
Scott says: “A lot of debt seeds are sown at the start, with poor contracts and understanding.”
And the debtor is seldom a rip-off artist; 80% of debts come from customers of more than 12 months who start with good intentions but find things change.
Is it always worth chasing the money till you get it? Scott says it depends on the value of the debt (sums must be significant) and what recourse you have. “Be practical. If after three months you have no success, perhaps stop there. But sometimes you have to put good money after bad for the principle of it. If this person has done this four times you might think, ‘I’m going to take them to court to make a point.’ It gives you leverage, to make someone recognise ‘it’s better to pay me than ignore me’.”
Dun and Bradstreet will give initial advice for free but if companies want to get serious they have to sign a contract. The agency charges a commission on money recovered, and nothing if it fails, but charges extra for legal costs incurred.
BETTER OPTIONS THAN COURT
Lines of credit have been tightening substantially and rapidly since about last November, says founder and head of EC Credit Control Ltd, John Harrison.
“So it ain’t easy and it’s first in, best dressed. If you are chasing someone you can bet your bottom dollar there are 10 others chasing.”
Harrison echoes Scott about the likelihood of recovering overdue payments: “It depends on your terms and conditions of trade – which will differ for each country. If you have none, you are stuffed.”
EC Credit Control can provide a free appraisal of clients’ terms of trade and sells a package of suitable documents for about $1,500-2,000. The company is a one-stop-shop and operates on an average 28-day collection cycle compared to two to three years, which is the norm otherwise, Harrison says.
A key reason for the company’s success (apart from the motivation of having to recover debt to get paid a commission) is its ability to list the non-paying business as a defaulter with its country’s financial institutions andsuppliers. “This is more pernicious than delays through the court system.”
OnGuard New Zealand is a Netherlands-based company that started selling credit management software here this year. Country manager Marc Vergroesen says OnGuard has three products that vary in sophistication and include tools such as ascertaining customer credit limits from companies like Dun and Bradstreet or Veda Advantage, the ability to relate your company credit policy to each customer and to operate in multiple currencies and languages (including Maori).
Minimising exposure to debt is done by having robust processes up front; knowing as much as you can about your customer before you ship the goods, reinforces Veda Advantage New Zealand’s managing director John Roberts.
“Above all what is needed is effective handling of an export transaction until shipment occurs and thereafter, effective debt supervision: time is money,” he says.
KEY TAKEAWAYS
- Understand your debts at the contractual stage.
- Sometimes you have to spend money to chase bad debts for the principle of it.
- Some countries don’t even recognise an ‘abuser pays clause’ that adds all costs and interest to the debtor.
- New Zealand Trade and Enterprise and the Ministry of Economic Development can give advice on these countries.
- Collection agencies charge a commission on recovered debts: no recovery, no cost.