It won’t come as a surprise to you that creditors have much better memories than debtors.
If you are in business and offer payment terms on credit you will be only too well aware of this. Most businesses that owe money will have some form of fiscal amnesia, and it can be a time-consuming, expensive and frustrating process to snap them out of this state.
Offering credit is as old as business itself and, applied and collected correctly, is a tool that facilitates ongoing trade, expansion and the fostering of commercial relationships and loyalty.
Larger companies with strong balance sheets and market presence can negotiate and apply stringent and onerous payment terms. Fonterra is world-class in this category. New Zealand’s largest dairy producer really flexed their cooperative muscle when they decided that they would pay their suppliers a whole 61 days from the end of the month that the invoice was received. Yes, that is correct, if you sent Fonterra an invoice on the 5th of April you are looking at receiving your payment at the start of July…… so not only have rural sector services had the Labour Party and the Greens to deal with, they also have had Fonterra on their hands. On the other hand, the benefit of being a supplier to Fonterra and therefore subjected to these terms is that payment, however delayed, is almost guaranteed.
Onerous credit terms like that outlined above strangle business, but not as much as the non-payment of an invoice. Many companies can afford to soak up bad debts; however, smaller companies do not have the luxury of a large and forgiving balance sheet. Many sectors, with construction being the obvious example, operate in an almost domino-like setting where non-payment of an invoice can affect operations and the ability of a company to, in turn, pay their invoices as they fall due. All of this gnaws at the carefully developed business relationships that have been built up over time. It can be a very delicate situation where a business is trying to preserve its commercial relationships, yet they are often having frustrating and uncomfortable conversations with these very clients.
It is for that reason that many businesses allow credit to grow and debts to increase as they do not want to upset the very people that are fuelling their turnover. As with anything, this all comes to a head when the value of the debt outweighs the ongoing viability of the relationship. This will often see the relationship reach a point of no return. Either the supplier will never deal with the client again, or the client feels aggrieved at the way they were chased for the debt, and they pull their business.
Time really is of the essence when it comes to debt recovery and debt collection. Goodwill between the parties is still intact, the amount owing is smaller and more manageable, communication is available and, as the old saying goes, the squeaky wheel gets the oil. If a debtor isn’t paying you, there is a decent chance there are others out there who are also going without; therefore, it makes sense to be further up the chain of the debtor’s list of priorities.
We have a very pragmatic and proactive approach to debt recovery and we always adhere to something that is becoming increasingly uncommon – that being common sense. We approach all recovery with a view to maintaining and even strengthening your commercial relationships as best as possible. We communicate at all times with all parties so everyone knows exactly where they stand and what the reality of the situation actually is.
Debt recovery will occasionally fail and, at that point, we have a multitude of options we can explore all of which will be considered relative to your circumstances.
Likewise, if you owe money it is also important to manage the process well from your end. New Zealand is a village when it comes to doing business, and your reputation and access to credit are paramount if you wish to conduct business in the future. The current economic landscape is very mixed and financial strain is very much a reality of the situation we are in. Managed properly, your financial pressures can be dealt with in a way that allows you to both move forward and establish yourself from a commercial standpoint once again in the future.
Because, as they say, “a winner is just a loser who tried one more time”.
What is important is that you have the chance to try one more time.
