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There is no question that technology is helping factors function in a more efficient, cost effective manner. But Emma Hart points out that sometimes the old-fashioned methods work best, especially when it comes to keeping close to your debtors.
After over three decades in this industry, I have found that more-often-than-not it is not debtors that cause a monetary loss for a factor, it is clients! Rarely does a debtor fail “out of the blue” or refuse to pay for no good reason. Plenty of times they refuse to pay, and their reasons are varied: quality issues; late delivery; missing product; contractual contingencies etc – all of which is down to the client to ensure performance.
Staying close to your debtors however, is key to mitigating the risk of loss. These days more and more contact is made electronically via email, accounts payable vendor portals and websites. However old fashioned as it may seem, building a relationship with a debtor is easier telephonically, than by email.
Calling debtors is positively encouraged, in fact it is a requirement in our organization. Our Credit Controllers and Account Executives are targeted and incentivized to make calls and we have a dedicated Credit Controller who does nothing but make collection and verification calls all day long.
A debtor is more likely to “tip you off” over the phone, rather than commit in writing to something, even more so if you have built a relationship with that debtor.
Collection calls and verification calls are the most important facet of our risk mitigation tools. Yes we have systems and platforms to identify trends and risk in the portfolio and highlight deteriorating aspects of our client’s facilities, we have a risk manager delving into the detail and analyzing data and training our team to spot the risks. We have processes and controls to mitigate against and ensure oversight of areas that could create a risk situation, but none of that can replace a debtor telling you that your client has asked them to verify an amount that bears no resemblance to what they actually owe, or that they have been asked to mail a check to the client directly for example. A debtor is generally wary of putting this type of information in an email, due to their ongoing relationship with their supplier.
Losing money is an inevitable part of lending money, keeping that loss to a minimum requires a certain amount of skill, and buckets full of tenacity, persistence and momentum, and it doesn’t hurt to have a British accent apparently!
Since arriving in the US in 2008, with already 20 years of factoring and Asset Based Lending under my belt, my colleagues were adamant that it was my accent, and not my experience, that was the key to my success. My calls were returned, where theirs were not, and I was able to reach agreements with debtors and clients alike to collect back what we were owed. I can even write “stroppy” emails in a British accent apparently, and illicit a response where none had been forthcoming prior to that. After over 10 years on this side of the pond, I will finally admit that there may be some truth to that, however I favor tenacity and a dogged determination to speak to the debtor/client to collect on the amount owed.
Some client’s businesses fail, that is part of the circle of life, and when ongoing supply to the debtor has ceased, it is much more difficult to collect in all of the open invoices, yet this is when it is vital to pick up the phone and maintain contact with the debtor until they have paid. Many times, debtors need reassurance that despite their supplier having failed, they actually do still need to pay their invoices in full. You can be helpful in suggesting they seek their own legal advice to verify this, so as to not delay the payment, and these calls should take place sooner rather than later so you can head off any delays, confusion or uncertainty about what they should do.
Momentum is critical in a collect out. Once you allow time to come between the invoice becoming due and when you reach out, debtors have the opportunity to decide that they no longer want the product, that it now is not good quality, or they do a deal with an incoming supplier such that they don’t need your product any longer, all of which will dilute your ability to collect back your exposure. It is easy for Account Executives to become distracted by those clients that are very active and demanding, and lose sight of the quiet one that has failed, so we incentivize our Account Executives to collect out our exposure in full, with an additional bonus if they collect enough to cover fees too.
Visualizing a collect out position is good for the Account Executive and Management to see the position at a glance. Back in the early ‘90’s, before we had PC’s let alone excel, I won an “award for innovation” for inventing/designing a method for visualizing a collect out. It was in the form of a pad of paper with rows and columns and all details were hand written – we have the same system now – modernized somewhat in excel, so that at a glance, we can see what portion of the Accounts Receivable is collectible, uncollectible and unknown, as it relates to our funds employed. The Account Executive is motivated to see an increasing “collectible” column and management can immediately determine if a secondary exit route needs to be implemented to recover our exposure.
As an industry we seem to be modernizing away from the basics of speaking to debtors, favoring technology and electronic communication – and there is certainly room for both, nothing beats an email trail of evidence when needed. With the continued increase of phishing emails trying to manipulate and misdirect payments, building relationships with debtors and maintaining regular verbal contact should not be underestimated as the ultimate in risk management tools.
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