Coronavirus: credit control and making good use of down time

Credit managers face a difficult, challenging and diplomatically demanding dilemma at the moment – trying to collect outstanding monies to assist their own cashflow while showing forbearance with those who cannot pay.

Various government guidance notes along with the current position of the courts and enforcement officers has made active debt management and collection much more limited. The current climate does however allow credit managers and their teams invaluable time to conduct a cleansing exercise on their accounts which could have significant future benefits both in preventing excessive debt building up and making future recoveries swifter and easier.

The most challenging issues in credit control often do not relate to the facts of a given case or the legal issues raised but in trying to make recoveries using out of date or inaccurate data. Simple things like an incorrect address for an individual, out of date company name or an instance of a sole trader incorporating into a company can lead to significant, and easily avoidable, additional costs.

Where credit teams are unable to actively pursue debts, credit managers could consider using this time to review their credit accounts (starting with key accounts) and check the details held on that account of their client. Such a task may include challenging the data held by asking:

• For individuals – do you have correct contact details, is their address still accurate, do you hold an up to date telephone number? Does the email address provided still work and receive a response?
• For companies – has the registered office changed, have there been any changes in directors, when was their credit limit last reviewed, when was this communicated to the company, does their credit limit need further review?
• For personal guarantees – are the details still correct and is the personal guarantor still connected with the company? Does the personal guarantor remain a viable security for the company (retirement or moving abroad)? Should updated or alternative personal guarantees be sought?

The exercise as outlined above may be time-consuming (and thought tedious by some) but it will yield a number of benefits:

• It will improve the data you hold which is likely to mean that any credit issues can be resolved earlier and more cost effectively.
• It will allow you to more readily identify accounts of concern which may require more active management.
• it will comply with GDPR obligations regarding up to date data and removal of out of date/irrelevant personal data.

Another major advantage of taking time for housekeeping during the current situation is the fact that it presents an ideal opportunity for companies to review their credit terms, updating their terms and conditions if necessary and to ensure that these are sent out again to all customers. Cases go to trial on a regular basis over the question of whose terms are incorporated into a given contract. This issue can often be rectified simply in advance by a one-page agreement.

At Shoosmiths, we’ve also encountered sets of terms and conditions with no (or an inadequate) contractual costs clause. Litigation is undoubtedly an expensive process and as much of the burden of that expense as possible should be passed on to the debtor. If you do not have these clauses in your terms, it simply increases your risk of potentially not being able to recover your costs later.

All these are pro-active steps which can be taken in this difficult “down time” and which are likely to have a positive impact on credit management and future recoveries. Most can be undertaken by telephone, email or online, so can be conducted with no risk to employees. These small housekeeping tasks taken now could lead to much more efficient and cost-efficient recoveries which will be of paramount importance in the financial uncertainty that is undoubtedly to follow.