Credebt Fundamentals of Book Debts
Attention Funders: it is essential to get the fundamentals of Book Debts right from the start, as this will make a big difference in getting paid on time, and in maximising realisations in case of a Collect Out.
At Credebt we have many years of experience in dealing with Book Debts, and our MD, Glen Morgan, even wrote the syllabus on this subject. We’d like to share our knowledge with you, so you can avoid making costly mistakes.
1: Book Debt Essentials
All Book Debts need a number of essential things:
- A clearly and consistently defined Seller – all documents should consistently show the Company Name in full, as well as the registration number.
- A clearly and consistently defined Buyer – If the vendor or buyer is indistinct or at doubt this can frustrate book debt assignment and/or collection. A classic is where one company orders the goods, a second company is mentioned in all paperwork and a payment history is built up in a third company name.
- An Order or originating instruction from the buyer to the seller– preferably written. It should be dated, specify goods, quantities and delivery instruction. All too often orders are verbal or imprecise. Other forms of Order might be a Letter of Engagement or Hire Request.
- An Order Acknowledgement – a document from seller to buyer in confirmation. Less than half of transactions have one of these but it is a key document in proving who ordered what, where, when and why.
- A Proof of Delivery. Generally a document that lists items delivered but without price data. A copy of the document is attached to the goods and a copy should be signed, dated and returned to the seller.
- Any post-delivery notifications to do with quantities, quality, or goods not complying with the order.
- A Sales Invoice, showing invoice number, Buyer and Seller details, Order number, goods description with quantities and prices, dated, referenced, stating Terms of Sale and credit period, payment instructions and any other relevant information.
- Credit Control Documents, statements, chasing letters.
- Payment, in compliance with the request, from the entity who ordered, received the goods and accepted them.
2: Battle of the forms
It is important that it’s clear whose terms and conditions hold sway. Those of the buyer, or those of the seller. This will depend on a number of factors:
- Whether there is a formal contract. If there is a contract signed by both parties, the terms therein or related to will be in force.
- Which document was accepted by the other immediately prior to the transfer of ownership of the goods. Generally this is either the Order or the Order Acknowledgement. Terms printed on the back of an invoice are useless, the transaction has already happened.
- In the absence of any paperwork whatsoever you have to decide when would a reasonable person have assumed title to have passed.
There are very many reasons why 100% of the invoice value may not be recovered from the customer. Here are a few of the common ones:
- Short Delivery
- Not what the customer ordered
- Goods returned
- Delivered late and returned
- Prompt payment discount
- Purchase ledger Contra
- Pay in a different currency and the exchange rates move
- Overstated prices/or quantities
- Marketing contributions
- Shelf space acquisition
- Buy-one-get-one-free type promotions
- Trays and Pallets
- Delivery slot missed penalties
These are many and various and it depends upon the industry, activity and nature of the contract. Construction industry contracts are notorious for frustrating debt collection. Other tricky ones exist in aerospace, oil and gas industry, heavy engineering, waste and hazardous waste, electrical and air conditioning contracting, shipping and transport, shop-fitting, facilities management.
In general large companies will have this area heavily weighted in their favour over SME suppliers.
Construction contracts generally include:
- Joint contractors terms
- Insolvency provisions
- Counterclaims for unfinished works
- Sub-contractor rights
4: Debt Collection in a Gone Situation
If it is difficult to collect 100% in a normal trading position, it gets even harder to collect in all receivables in a Gone Situation. There are various reasons for this:
- Poor or missing back up paperwork
- Issues around whose terms and conditions of sale/ purchase prevail
- “So sue me….” Either a large company protecting a big amount or small company with a small amount.
- Loss of continuity of supply
- Loss of on-going warranty in the goods
- Customer failure or “gone away”.
- “Can’t pay, Won’t pay” … customers pleading poverty
- Already paid and previous payments have been wrongly allocated
- Sale or Return terms agreed
- Awaiting return of customer property – artwork/ barrels/ tooling/ pallets
- Value of transactions dwarfed by value in free issue goods
- Hauliers lien over goods still in transit.
- In recruitment permanent placements carry a counterclaim if starters leave in first 3 months.
Inevitably, in a conventional commercial setting there is an effort made by the customer to avoid paying in full. Our efforts are to keep the write-down to a minimum but inevitably there may be some “horse-trading”.
In most cases customers “freeze” payments as soon as word of the failure is in the public domain. In order to extricate payment in many cases it comes down to “leverage” over the customer and our relationship with a Credit Insurer often proves a valuable lever.
How can we help?
Remember that we are the experts in collecting in Debtor Books in any situation, and we are more than happy to help you with any issues you may have.
Feel free to contact us for a no obligation chat in total confidence, or arrange your Free Debtor Collateral Review to find out your Position.
Call us on 0845-6385256 or email email@example.com