PrintSpeak survival guide: Outsourced debt collection

nil recessus carborundorum

success story...

outsourced debt collection

This week's success story is about a small printer that had the misfortune to produce some work for a charity that didn't want to pay. After exhausting all avenues, the printer called in a debt collection agency.

The printer was a six-year-old company, producing all kinds of general commercial work for mainly local and regional customers. It had a yearly turnover of around £400,000, and its profit margins were not high - so it was vulnerable to any level of debt.

The printer was owed about £10,000 for printing a series of leaflets by a local charity. The debt had progressed to its due date - thirty days - and remained unpaid, and the printer had then sent a series of letters and phonecalls which had produced no result. The debt was still outstanding at 90 days, when the printer decided to pass the debt to a specialist print industry debt collection agency, ICSM.

We just wanted our money. We had done the work in good faith, and of course we had to pay our own suppliers - so we were out of pocket by a long way.

ICSM sent the charity a letter on the same day it was instructed to recover the debt. The letter introduced ICSM and requested payment. This was followed up by a number of phonecalls and emails over several days. ICSM eventually received a call from the charity's head, pleading extenuating circumstances. In response to this, the printer offered a realistic payment plan, and the charity agreed.

Out of pocket

"We just wanted our money," said the print company's owner. "We had done the work in good faith, and of course we had to pay our own suppliers - so we were out of pocket by a long way."

Perhaps unsurprisingly, the charity did not adhere to its payment plan, and after a further notifying letter, 40 days after being instructed to recover the debt, ICSM took the charity to court. A judgement in the printer's favour was obtained, but again payment was not received.

Variation of judgement

After this, the charity applied for a 'variation of judgement' (basically an appeal) to which the court responded by scheduling a hearing; the charity did not attend the hearing, and the judgement therefore was allowed to stand.

After persisting with letters and phonecalls, ICSM received two cheques - the first, eight months after being instructed, and the second, a month after that. This meant payment arrived almost a year after the work had been done. The directors were delighted: having absorbed the original debt, the payment was an unexpected bonus.

what is...

outsourced debt collection?

Outsourcing debt collection begins where inhouse credit management leaves off, says Ian Carrotte, managing director of ICSM

Collection agencies can work on either an ad hoc basis or an ongoing basis, where they take over your sales ledger and administer the debt, making sure it's paid on time and raising any concerns early in the process

Debt collection dovetails with a credit management policy. The line between credit management and debt collection is a thin one - it works best for each company to have a set of rules concerning escalation of a debt into different stages of response

Stages of response typically begin with a courtesy call when an invoice is issued, to make sure it has been received and a customer has no issues with it. Following this, if payment isn't received by the due date, phonecalls and letters should be sent

A debt collection agency will take over the management of the debt, working with the printer to offer payment plans if appropriate, or to approve court involvement at a later stage if necessary, and thereafter to enforce any judgement

A specialist debt collection agency may also use its influence to inform the debtor's other suppliers about a bad debt, and to inform the debtor that these steps may be taken, encouraging the debtor to address the situation. For instance, ICSM has significant contacts with other suppliers to the print industry, and will leverage this where necessary

who can benefit from...

outsourced debt collection?

Any printer can benefit from outsourced debt collection - it simultaneously saves money and brings in money

Any company not employing its own inhouse expert in debt collection - or legal team - can benefit from outsourced debt collection

In addition, any sensitive relationships may be best handled by a professional out-of-house agency, to avoid prejudicing a future relationship (if such a relationship is desirable)

Outsourcing also works well for companies that are too small to afford an inhouse credit controller, with all the employment overheads such as PAYE/NI and holiday/sickness pay

Debt collection agencies work best on an ongoing basis, rather than an ad hoc basis, although this can be useful for dealing with specific bad debt

It also pays dividends (literally) to recognise a bad debt before it's too late to collect it. In the first quarter of this year, ICSM recovered nearly £5m of debt for the UK print industry, but said it "could have done much more" if printers had used its services earlier

Welcome to the PrintSpeak Printers' Survival Guide - helping you to ride out the recession

The pages of the printing trade press have recently read like a Domesday roll-call of print's great and formerly glorious. Who could have predicted the failure of Borcombe SP, Kelvin Print Group, Quebecor, Capital, Printhaus, Butler and Tanner, Celloglas and more? With margins on print lower than they've ever been, the current global economic crisis is magnifying the cracks in every print business model.

But for every bad news story, there are plenty of success stories. Here at PrintSpeak, we decided to pull together a weekly newsletter looking at printers who recently hit a sticky patch - and what pulled them through. We hope it will provide our readers with food for thought. A struggling business is not necessarily a failing one - and knowing who to call is half the battle. In the coming weeks we'll be looking at subjects including factoring, debt collection, credit management, VIAMBOs, cost rate reviewing, credit insurance, financial restructuring and more - building a library of business know-how and giving you the contacts and knowledge to ride out the recession.

Karen Charlesworth
Publisher, PrintSpeak
karen@printspeak.co.uk