The Association of Credit Professionals

PRACTICAL STEPS TO MAXIMISE RECOVERIES IN SOUTHERN IRELAND

YourACP — Tue, 17 Apr 2012 21:32:02 +0000

It would not be unfamiliar to the readers of this journal that Ireland has encountered what can only be described as catastrophic financial problems in the last couple of years which continue. I do not propose to concentrate on Ireland’s financial problems in this article but I think that most commentators would agree that Ireland’s financial problems will take some time to resolve.

In that regard, it is now more important than ever that prompt action is taken in relation to outstanding accounts in the Republic. At the moment the position in relation to solvency or otherwise of companies is very precarious and in that regard it is the old adage of he who shouts loudest that definitely applies in the current marketplace.

It may well be the case that creditors can negotiate deals with debtor companies but how to secure those arrangements are going to be long-term in a fluid moving environment is questionable.

It is our experience being one of the leading specialist debt recovery practices in Southern Ireland that UK creditors in particular are reluctant to take legal action against Irish debtors in the circumstances where they feel they may able to negotiate an agreement with the debtor company but on the other hand, UK creditors are also reluctant to accept lesser sums than are actually due to obtain a quick settlement. In my opinion this may well be a mistake. My view is that either one negotiates a full and final settlement which is paid almost immediately if possible or alternatively, one issues legal proceedings to obtain payment of the debt. Again it is my opinion that simply accepting a certain amount per month off a debt is unlikely to be adhered to and may result in payment not being made. Therefore either the UK creditor should either issue proceedings in an attempt to push themselves up the queue of creditors and get paid quickly or alternatively make an arrangement that a lump sum payment be made almost immediately.

This may take some change in the mindset of UK creditors, and indeed it is my experience being qualified as a Solicitor in England and also in Ireland and having worked in England, being a UK national, and having worked in Ireland for nearly 20 years, that there is a mindset of UK creditors that payment should be made in full, plus interest and plus costs.

Unfortunately, in the present economic climate which we experience here on a daily basis, that is with all due respect, naive. As well as these issues raised above, there are other problems that UK creditors will experience.

The first mistake that is often made by UK creditors is that they attempt to make arrangements with a debtor when the debtor has exceeded their credit terms and the negotiations proceed too long and the debtor manages in effect to probably obtain a further six months or so credit with possibly not making any payments. It is much more efficient use of resources, time and money to instruct an Irish agent to liaise with an Irish debtor. There is the immediacy of the contact as obviously there is a tendency to ignore any contact from overseas in relation to unpaid debts.

The contact from the Irish legal representative is preferable in that the debtor knows that should there not be an agreement reached which is acceptable to the client, that there is the distinct likelihood that legal proceedings will be issued in whatever form is appropriate quickly and that obviously has an impact on the success of the negotiations.

If it is impossible to obtain a negotiated settlement with a debtor, then obviously the next stage is to issue legal proceedings as soon as possible and in that regard it is very important that the Irish agent is aware fully of the history of the case. For example, there may be an admission of the debt, in which case insolvency action may be more appropriate and likely to bring more immediate results rather than choosing the traditional method of issuing proceedings and then receiving a Defence and the associated interlocutory steps.

At the moment the Irish Courts system is basically overloaded with work and additional legal remedies such as the issue of normal Court proceedings are taking a considerable amount of time to come to a conclusion and it should be noted that in the Irish Legal system, there is not really a provision that is effective that allows you, as a creditor, to dispose of a defence which to all intents and purposes is entered purely to delay the case.

There is a general premise in Irish law and proceedings that any defence should have to be investigated fully by the Courts whether that is on Affidavit or by oral evidence. Therefore, the point I am making is that it is very important as advised above, to allow one’s agent to have full access to the history of the matter whether there were any personal guarantees, admissions of the debt etc because that allows the agent to be qualified to provide you with the best possible way forward in relation to issuing the correct form of legal proceedings and it is the case that one size does not fit all in this regard.

For example, if there is a case which is clearly undisputed, perhaps there is a letter offering payment or an admission of the debt, and the debt is reasonably substantial then it would be prudent to consider taking insolvency action. One of the most common forms of insolvency action is issuing a winding-up petition against the debtor company on behalf of the creditor. The first stage of this process is service of a statutory demand notice at the defendant’s registered office by hand, which gives the company 21 days in which to respond and either reach agreement with the creditor and make payment of the debt. The 21 day period cannot at present be varied under Irish law although I understand in the UK that it is possible to petition a company less than 48 hours after service of the statutory demand.

If there is no response, then it is necessary to issue the winding-up petition. The benefit of a winding-up petition in the present financial circumstances, for an undisputed debt is that it is much quicker than traditional Court proceedings as eluded to above which quite often will be defended on spurious grounds, there is less of an avenue for a debtor to explore that in relation to liquidation proceedings. These are the exocet missile of legal armoury and they can be stunningly effective in realising funds for creditors although it should be mentioned that Irish Courts tend to frown upon winding-up petitions issued solely for the purposes of debt collection although this is an area which is fraught with difficulties for the Courts because effectively there is nothing to stop the creditor issuing a winding-up petition as it is a legitimate remedy for them to bring and they are entitled to bring that remedy despite the fact that the Courts may frown upon the purpose behind it. Once a winding-up petition is issued it will come to the attention of the various trade gazettes and bankers and has the potential to cause a company significant problems in the day to day running of its business and whilst this can be a hindrance to a creditor it is also a benefit in that the threat of such an action is predicated upon this and may therefore persuade the debtor to make payment. Once a petition is issued it is then advertised in two national newspapers and comes to the attention of the general population. If subsequently a winding-up Order is made then a nominated liquidator is appointed by the Court whose job is to realise assets of the company and to distribute those according to whether they are creditors, preferential, secured or unsecured.

This is only one of a number of possible insolvency remedies available. Whilst in the insolvency arena however, I should mention retention of title clauses. Often a creditor will be satisfied to receive their goods back when a company is going into liquidation or perhaps examinership. In that regard it is very important to seek specialised legal advice in relation to those kind of instances because it is quite often the case particularly if a company is in examinership or in some form of insolvency situation that the retention of title clause that you provide if such is available to you may be attacked by the insolvency practitioner and I am sure this is not a dissimilar situation to the UK. Consequently, it is important to obtain proper legal advice in this area to maximise recovery of goods and possibly monies.

If there is a dispute in relation to the case and that cannot be either settled or mediated between the parties, then obviously it is necessary to issue legal proceedings. There are three main Courts, the District Court, Circuit Court and High Court, The District Court deals with cases up to €6,348.00 and the Circuit Court deals with cases up to €38,092.00 and the High Court deals with cases over €38,092.00.

Whilst I have eluded to above legal proceedings particularly in the Circuit and High Court can be protracted, again, if you can provide your agent with information perhaps as to admission for debt etc, offer of settlement from the debtor that is not on a without prejudice basis, then that significantly increases your chances of obtaining a Judgment at least perhaps for a partial amount of the debt.

Finally, it is very important to note that issuing proceedings from a foreign jurisdiction against Irish debtors is fraught with difficulties. Whilst it is possible that you will perhaps receive no response to the proceedings and therefore obtain Judgment quickly, that Judgment still has to be enforced in this jurisdiction, and there will of course be a significant delay in you obtaining that Judgment and subsequently enforcement will obviously take time. That issue can be avoided if you issue proceedings in Ireland and avoid issuing proceedings in England to be served in Ireland. Again as alluded to above there is immediacy with using an Irish agent as opposed to using a UK agent which may result in the difference between you getting paid and not getting paid.

To summarise therefore, it is important that when you are aware of a payment issue with a debtor that you should immediately contact your Irish agent to seek their advice on the best way forward and you should involve them at a much earlier stage than traditionally companies tend to do because they are concerned generally about what costs will be incurred.

It is my view that significant increase in recoveries from Ireland could be obtained by UK companies if they involved the appropriate Irish agent at as early a stage as possible if only to make a call to the potential defendants advising them that the solicitor is involved and that there will be consequences if the payment is not made. The alternative to this is to proceed, and I have seen this many, many times for maybe six to twelve months with broken promises, and finally a desperate request to the Irish solicitor to obtain payment of the debt when obviously as we all know the longer a debt is outstanding the harder it is to collect, particularly in the current financial circumstances which Ireland is experiencing.

I would welcome any queries from readers in relation to this article and it may well be that they have a different view to myself as to collections in Ireland and their experience of collecting in Ireland from England and I can be reached at the email address at the bottom of this article.

Matthew Wales

Principal of Wales & Co, Solicitors

Irish Specialist Debt Recovery Solicitors

mwales@walesco.ie

If you can’t beat it, manage it!

YourACP — Mon, 05 Mar 2012 16:10:38 +0000

From my professional experience I have learned that Credit insurance can help manage risk and support revenue growth. Let me tell you how.

Some time ago I started as looking at the option of taking some local cover for the EMEA region, especially looking at the “country risk” in some complex or emerging areas such as Turkey, Israel and Russia. As the Credit Manager of an American-based company I also had the task of reconciling an aggressive new strategy of targeting smaller (and riskier) direct customers with the two most dreaded words of the modern business vocabulary: Sarbanes-Oxley, and the somehow conservative approach to risk and credit line management that sometimes may come of out Sarbanes-Oxley type policies. After meeting with some credit insurance brokers, it became clear very quickly that the option of a geography-based policy would have been quite expensive and that leaning toward a solution of adopting a corporate credit insurance scheme would have provided the company a more cost-effective solution and also given the option of using the credit insurance as a tool for a more flexible Risk Management.

While working on this project, sometimes I was asked the question: “why do we have to spend money on credit insurance if we have virtually no bad debts?” I believe that there are a few points to factor in the answer:

by taking on Credit Insurance, “oversized” and virtually unnecessary bad debt reserves on the balance sheet can be reduced to a minimum and the money re-allocated to more productive use enhancing the working capital of the company.
Even though accounts receivables represents a very sizeable part of current assets portfolio, it is the only asset that is often left unprotected. Credit Insurance protects the riskiest and often biggest portion of a company’s current assets.
Credit Insurance can be very effective as a strategic marketing tool which often makes the difference between winning and losing a sale. Even when companies are not concerned with incurring bad debt, they may find themselves at a competitive disadvantage by reducing their credit limits, not taking advantage of opportunities to penetrate new markets or win new business as a result of strict credit policies. A credit line that is secured by credit insurance allows more flexibility into the credit approval process and therefore encourage sales growth.
Even if in the past, credit losses have been minimal; predicting the future just by extrapolating from past or current trends can be risky business! Credit Insurance can protect against severe credit losses, which result in reduced working capital and an erosion of profits.

At this point, some would say “that’s all well and good, but do we really need credit insurance?” I personally believe that that it would be wise to consider credit insurance as a very effective risk management tool. It is a good solution because offers risk reduction and a professional partnership designed to insure accounts receivables, enhance working capital, and expand sales.
To fully understand if there is need for such solution, ask yourselves some questions:

Do we worry about the financial strength of our key buyers and the implication their insolvency would have on our business?
Are we losing business to our competitors who are extending financing to their buyers?
Do we want to aggressively expand our customer base while limiting corporate bad debts?

Personally I’ve answered “yes” to all the questions many times during my career and I strongly believe that credit insurance is a very good idea and potentially fits the needs of the strategies of businesses that are involved in international trade. It does show focus on cost/effectiveness and value based cost management. It enforces good corporate citizenship by ensuring good governance and compliance of the credit department’s decisions. Credit insurance also has the potential to support the company’s strategy to target at more direct fulfilment while securing less conservative credit lines to smaller customer with good growth potential. It’d be a particularly good fit for regions such as EMEA and Asia-Pacific where financial information is not accessible and available as easily as in the North American geography.

The bottom line is that if a business is seriously committed to best practice in credit and risk management, credit insurance should be considered in the same way that an individual should consider health insurance: if it can be afforded it should be done! The fact that there is no history of illness does not stop that same person (or company) from being ill (even badly) in future!

Massimo Lepri

ACP Director for Ireland

massimo@youracp.org

5 things to do to get paid on time, every time and maximise your cash flow

YourACP — Mon, 05 Mar 2012 16:08:59 +0000

Cash is King as we say in Ireland, and as such it can make or break the survival any business. Particularly in the tough economic times we are experiencing, the ability to get cash into the business bank account is vitally important.

Amongst the reasons most businesses struggle or fail is simply that they run out of cash or their cash conversion cycle is very slow. Most entrepreneurs may have a profitable business but they don’t chase slow-paying customers. Without strong credit control processes the business can’t grow and in many cases it leads to not being able to pay their own bills. That’s the start of a vicious circle that can result in crushing years of hard work.

To avoid running out of cash, put together a good credit control program into your business and stick with it. At the Credit and Collections Hub we recommend that you always follow at least 5 simple suggestions:

1. Set clear expectations

We would all love to be paid in advance or have cash paid into our pockets within 7 days of delivering the product or the service. Unfortunately it does not happen in the real world of business. Set realistic terms that are in line with the industry standards or the customer’s requirements and do not be afraid to let all your customers know about your payment expectations. Get used to inform them about terms of payment during the sale process. Add your payment terms into your standard terms & conditions, customer contracts, and state them clearly on every invoice.

2. Make it easy to be paid and reward early payments

Nothing is more frustrating to businesses than getting an invoice from a business that only accepts cheques. Offer as many ways of getting paid as you can. Be clear who cheques must be paid out to, and give your bank details accurately. Facilitate customers with standing orders or consider using Direct Debits. You could also consider accepting PayPal, or if customers would prefer to pay with credit cards, register with an online ecommerce solution for a cheap way to take credit card payments online.

Tell your customers that you will apply a percentage discount if they pay your invoice in advance or before the standard due date. Confirm what they could save clearly on the invoice and encourage early payments. Any business will be in a much better financial state if they can get a large portion of customers to pay quicker. The discounts could always be built into the pricing structure.

3. Do not be afraid to take action with late payers

When it comes to late payments, the worst thing that most businesses do when a customer doesn’t pay on time is to ignore the warning signs, look the other way and hope for the best. Fact is most customers may be too busy running their own business to worry about yours. Customers that don’t pay must be reminded to take action. Do not get caught by the trap of not wanting to chase a customer for payment, for fear of losing them. A customer that places orders but doesn’t pay for them is a threat to the business no matter what.

4. Credit check new customers

Credit checks are not expensive; especially if you consider that the business could save thousands in the long-term. By all means credit checking will not guarantee that payments will be made on time but will provide valuable information about the credit worthiness of potential customers, allowing the business to make a better decision about the order and avoid unnecessary losses and exposures. At the end it is still possible to do business with his risk customer, but knowing the risk in advance will allow room to adapt and reduce the credit terms on the worst risk deals.

5. To be profitable any business needs a very strong and clear Credit and Collections process in place

Set a clear procedure for credit control with a good mix of letters, emails and phone calls. Any communication should be polite but firm, and remind the customer that there is a legal right to charge interest on the debt from the day it was past due. When you have exhausted the end of your process just hand it over. Most credit and collections agencies would suggest that the sooner an account is handed over the better chances to recover the debt there are. An “early escalation” action such as getting a call or a letter from an agency has proven to give the right sense of urgency most solvent businesses and generate the required payments.

Make time to deal with credit and collections on a regular basis and do not slip up. The secret of good credit control is tracking every invoice and knowing what’s owed to you at any given time. It is truly as easy as that if problems and queries are not allowed to pile up. In order to gain peace of mind and be able to focus on growing the business more effectively, you should seek the advice of an expert if it is too challenging to stay on top of your credit control consistently.

Massimo Lepri FACP

ACP Director for Ireland

massimo@youracp.org

IRELAND- PERSONAL INSOLVENCY BILL, 2012

YourACP — Tue, 07 Feb 2012 14:15:14 +0000

On the 25th January 2012, the Minister for Justice and Equality, Alan Shatter, announced that the Government had approved publication of Heads of the Personal Insolvency Bill. When making the announcement, Minister Shatter said, “When enacted, this legislation will be one of the key legislative instruments for addressing the financial difficulties of general insolvency, mortgage debt and negative equity”. The Bill is a result of conditions imposed by the EU and the IMF as part of the bailout package.

The main impact of the Bill is that it proposes to introduce the establishment of a State-run Insolvency Service to operate the new non-judicial insolvency arrangements, it allows for three voluntary debt-settlement systems and it reduces the period of bankruptcy from 12 years to 3 years.

(1) The first voluntary debt settlement proposal is where a debtor has unsecured debts for an amount under €20,000. If the debtor has less than €60 disposable income per month and they do not own assets with a total value of more than €400 (one vehicle up to the value of €1,200 would be exempt from the asset test) then they can apply to the Insolvency Service for a Debt Relief Certificate. A one-year moratorium period during which creditors cannot pursue action against the debtor in respect of the debts covered by the Debt Relief Certificate commences on the date of the Certificate’s registration on the Insolvency Registrar and the debtor is restricted from applying for further credit. After the end of the year, if the debtor is still unable to pay off the debt, the debt is written off. The person must pay €90 for the service and cannot apply for another certificate within six years. A person is only entitled to apply for two Debt Relief Certificates in their lifetime. Similar systems operate in the UK, Northern Ireland and Australia.

(2) The second voluntary debt settlement proposal deals with unsecured creditors over €20,000. In this scenario, a debtor can apply for a Debt Settlement Arrangement. The first step in this process is to contact a Personal Insolvency Trustee who will assist in preparing a financial statement and will apply to the Insolvency Service for a Protection Certificate which will prevent creditors from taking any action against the debtor for 30 days during which time the arrangement is being prepared. The Trustee would then put forward a Debt Settlement Arrangement to creditors for agreement. Creditors will be presented with a possible arrangement which will indicate how the debt is to be repaid over a 5 year period. A percentage of what is owed will be offered to be repaid to the creditors. 65% of creditors must approve of the proposed arrangement and, if the arrangement is agreed upon, the arrangement will be registered on the Insolvency Register. If the debtor makes the payments as per the arrangement for 5 years then the debts covered under the arrangement will be discharged. Only one Debt Settlement Arrangement is permitted in a ten-year period. Creditors have the right to challenge the arrangement and have it annulled by the Court. If the debtor fails to keep up with repayments, the arrangement will fail. Similar systems operate in the UK, Northern Ireland and Australia.

(3) The third voluntary debt settlement proposal is a Personal Insolvency Arrangement for secured and unsecured creditors for an amount of €20,000 up to a maximum of €3million. A person will apply for a Personal Insolvency Arrangement when, although they have an income, they are unable to pay their debts when they become due. A Personal Insolvency Trustee will assess a person’s eligibility and that person must show that they are not suitable for option 2 and they will not be solvent for the next 5 years. The Personal Insolvency Trustee will apply to the Insolvency Service for a Protection Certificate which will prohibit creditors from pursuing the debtor for 60 days. The Trustee contacts the creditors and puts forward proposals of how debts are to be repaid. Unsecured creditors are offered an agreed percentage of what they are owed, to be repaid over 6 years. If part of a person’s mortgage is in negative equity, then this amount could be written off under a Personal Insolvency Arrangement, (e.g. if a person has a mortgage of €500,000, their house is worth just €300,000 and they can only afford to pay a maximum mortgage of €400,000, the debtor and their trustee might propose a debt reduction of €100,000). If a person has investment/buy-to-let properties, these will be put up for sale and if there is still some money owing after these have been sold, then a percentage of what is owing will need to be paid off over 6 years. For the Personal Insolvency Arrangement to be effective, at least 55% of the unsecured creditors and 75% of secured creditors must agree to the arrangement. The arrangement will be registered on the Insolvency Register. Creditors have a right to object to an arrangement by application to the Circuit Court. If a person later sells their family home and the price has increased, there is a provision for some of the money that was written off to be clawed back by the lender. It the debtor wins the lotto or receives a large inheritance over the term of the arrangement, then that will be taken into account also. After 6 years the debtor will be cleared of his unsecured debt. You can only apply for a Personal Insolvency Arrangement once during your lifetime.

The Personal Insolvency Bill also considers Judicial Bankruptcy for secured and unsecured debts. If other options have been tried and they have failed, then bankruptcy may be an alternative option. Bankruptcy can be voluntary or involuntary, but under the new Bill if the debtor owes a debt of less than €20,000, their creditor will not be able to petition the Court to make them bankrupt. If a petition for bankruptcy is successful, all of the debtor’s property comes under the control of the Official Assignee. Any money earned by the debtor will be used to pay off creditors after their living expenses have been deducted. A debtor will be automatically discharged from bankruptcy in three years, but the Court may make an Order requiring the debtor to continue making repayments to their creditors for a further five years. The discharge from bankruptcy could be delayed by the Court, up to a maximum of 8 years for non-compliance, fraudulent or dishonest behavior by the bankrupt during the process.

The Bill will now go before the Oireachtas where it is to be debated.

Philip O’Leary | Partner
FitzGerald Solicitors
6 Lapps Quay, Cork, Ireland

TEL: +353 (0)21 4279800
FAX: +353 (0)21 4279810
EMAIL: PhilipOLeary@fitzsols.com
WEB: www.fitzsols.com

Credit Management- USA

YourACP — Thu, 02 Feb 2012 17:52:27 +0000

In all of the news about the USA we often lose sight of the fact that the economic base of the country is still huge. By US government estimates this single, borderless, logistically powerful and ‘sensibly’ regulated economy is running at a 2011 GDP of USD13 trillion (measured by 2005 dollars).

The issue for today’s US credit manager is how to maintain an ‘optimistically realistic and yet skeptical’ outlook on the company’s customer base. Ever watchful for tell tale signs of weakness in customer financial positions, I retain a positive view of my own company’s ability to grow each customer. My credit policy states: “we will endeavor to find suitable terms on which to deal with each customer if necessary by exploring alternative arrangements.” Company growth cannot be hampered by credit rigidity in a depressed economy. There’s hardly a day that goes by without my encountering someone personally affected by a home or job loss.

What I call ‘a colossal failure of economic and political morality’ is at the base of all this. Every day I read of the latest twists in financial reporting. For fun reading pick up a copy of ‘Business Fairy Tales’ by Cecil W. Jackson published by South-Western in 2006. In this book Jackson lambasts, among others, Edison Schools a private sector corporation employed to run public sector schools. Mr. Jackson says: ‘It is unacceptable for a company to merely abide by the letter of the law if this inadvertently allows for the dissemination of misleading information… the spirit of the law must also be communicated.’

The outlook of the USA has been depressed by broken integrity in high places, but the USA is still a great place to sell products. If your company is selling into the United States and you have questions about our legal or financial background you may contact me through ACP’s Board Members.

Which Credit Managers outlook do you share?

Thank you,

Anthony Garside CCE CICP, Corporate Credit Manager

(Born in Hythe, Kent)

Otis Spunkmeyer LLC.San Leandro, California.

6 Stage Negotiation

YourACP — Thu, 02 Feb 2012 17:51:41 +0000

In this article I try and explain a negotiation approach I encourage among my team.

Before we learn the 6 stage approach, we must first consider preparation. Having the right preparation for a call will enable us to be assertive with the customer. We will then move onto the 6 stage negotiation approach.

When negotiating with a customer it is imperative that you are confident and assertive. Having the right information to hand will facilitate this. You need to know something about the customer’s history, what is their payment record like, do they owe a little or a lot of money, when are future charges likely to be added. You also need to know what your goal is. Must you collect payment in full today or do you have some powers of negotiation. Although you must never reveal it to the customer, you need to know what the minimum acceptable payment level will be.

6 Stage Negotiation is an approach that gives a structure to conversations with customers which will put you in the driving seat. The 6 steps are: first, expect payment in full; second, always refuse the first offer and encourage the customer to increase the offer; third, offer to do something for the customer in order for the customer to increase the offer; forth, be specific about the amounts and dates agreed; fifth, get the customer to repeat the agreement; finally, repeat the agreement back to the customer.

As we work through this module we are going to use a single scenario. Mrs James owes the company £450 for water services. This is made up of £350 for current year services and £100 for previous year. She has had a plan fairly recently. It was set up when she owed £600 at £50 per month. Although she made the first 3 payments on time, she has not made one for 3 months, so she is £150 behind her original plan. It is now December, so she will be getting a new Annual Bill in a few months time.

We want to initiate the arrears conversation with Mrs James. We need to be assertive and we need to let the her know we expect the arrears to be cleared today. We can achieve this by telling her how we expect payment to be made today. Following the usual greeting, try “Mrs James, I can see from your account you owe £350 for your water services. I can accept a debit or credit card for payment in full today.” If Mrs James makes payment in full, our job is done; if not we need to understand why not.

Mrs James might ask how much she is behind her payment plan or to let us know she has just made a payment. In fact, she was made redundant and went on a shoe spending spree to cheer herself up. We need to encourage a payment: “Mrs James, I appreciate losing your job will make managing your bills difficult and I will do my best to help, but I have a responsibility to collect the charges due. It is important we resolve this today otherwise we will pass the account to a debt collection agency to call at your home. Under the circumstances, I really don’t want this to happen.”

Mrs James might now make an offer to restart her previous payment plan – she used to pay us £50 per month. Refuse the first offer! Try saying, “I’m sorry Mrs James. Since you have missed 3 payments I cannot accept this offer. How much can you increase it by?” Mrs James now needs to balance this bill against others and makes an increased offer of £60 per month.

We don’t want to agree to any one off payment without knowing how the balance is going to be paid. Nor do we want to agree to a payment plan without an initial payment. We want to collect at least the payments Mrs James has missed. Try, “£60. OK, I’ll just need to have a look at your account … Mrs James, in March you will be receiving another bill for next year’s charges. If I can accept £60 per month, how are you going to catch up for the missed instalments?” Mrs James now needs to think about how she is going to catch up and offers an initial payment of £100.

We now need to summarise everything we’ve agreed with Mrs James. “OK Mrs James. So if you make a credit card payment today for £100 and set up a direct debit of £60 per month to be paid on the 1st of each month, then I can accept your offer. Before I take your card and bank details, please could you confirm the offer.”

It is very important that Mrs James repeats the agreement. This will demonstrate she has listened to and accepted it. You want Mrs James to repeat how much she is going to pay and when. That way she has demonstrated she understands and agrees to those payments.

Finally we take Mrs James’ credit card and bank details. Once we have entered them into the system and confirmed they are correct, we seal the deal by repeating for a third time the amounts being taken, the method being used and the dates of the transactions. “Thank you Mrs James. I have now accepted and processed a £100 credit card payment for today and set up a direct debit to take £60 from your account on the 1st of each month.” Now ask Mrs James to call again if her circumstances change and close the call.

Thank you,

Henry Mehta

Good News

YourACP — Thu, 02 Feb 2012 17:50:41 +0000

As we head into the cold winter months, a spot of good cheer was felt from a rather surprising source last month – the Insolvency Service.

Nor was this some good figures for the economy, with insolvency figures falling or a significant improvement in the bankruptcy statistics; I fear that it might be quite some time before we have any good news in that regards. Rather the positivity came in the form of a number of fraudulent businesses and directors who have been held to account.

Now, this might seem like an odd thing to celebrate but, as much as CCR is on the side of the industry and celebrates the work that it does, we must also comment on the bad apples because otherwise the truly outstanding performers cannot be recognised for who they truly are. And we must highlight those who intentionally try to defraud the industry and make the difficult job of a credit manager impossible.

For too long, the government has appeared to have a casual approach to prosecuting directors who deal illegally – and very often leave their creditors carrying the can. If the flurry of activity at the Insolvency Service, last month, is anything to go by, maybe attitudes are changing for the better.

On the creditor’s side. two Lancashire-based companies Business Rescue & Finance Ltd and The Leasing Company Plc, which purported to arrange loan finance for commercial clients were wound up. A third Manchester-based company, Qualitel Ltd, which allowed its merchant card processing facility to be misused in connection with this activity was also wound up.

An investigation found that Business Rescue made misleading statements to prospective clients about its ability to raise commercial finance in order to induce payment of administration and valuation fees, typically of £895 and £1,200 respectively. Clients were tied into onerous contracts and, if they tried to withdraw, they were charged a cancellation fee, typically of £5,000.

Meanwhile, some of the examples of bad practice of those attempting to defraud their creditors were just as staggering. For example, 61 companies are believed to be under the control of a foreign-resident director which filed false and misleading information and failed to co-operate with investigators. As a result, they were wound up. An investigation uncovered a serious lack of transparency as to who controlled the companies with the named directors proving entirely unresponsive.

In another case, brothers Geoff and David Auston were sentenced to terms of five years and 18 months’ imprisonment, respectively, at Teeside Crown Court for fraudulent trading. They had both pleaded guilty with intent to defraud the creditors of Lima Transport Limited.

Lima Transport had left fuel providers and vehicle loan companies to clear up the mess after Lima had secured credit from them and failed to pay the bills.

Meanwhile, Mukhesh Girdharlal Vagharia, a bankrupt, was sentenced by Leicester Crown Court to 12 months imprisonment after pleading guilty to two counts of fraudulently removing property before and after his bankruptcy.

An investigation showed that, between September 2007 and December 2007, Mr Vagharia, 53, of Leire Street, Leicester removed £63,000 in cash from three bank accounts to defraud the Official Receiver. Once a bankruptcy order is made, the bankrupt has a duty not to dispose of their assets other than for day-to-day living expenses.

These are not isolated cases – indeed such incidents are all too frequent – so we must never lose sight of the damage that they do. Damage that, in already difficult trading conditions, honest companies can well do without.

So any attempt to clamp down is only to be welcomed.

Regards,

Stephen Kiely, ACP Media Relations Director & Editor CCR Magazine

A lesson in humility

YourACP — Thu, 02 Feb 2012 17:49:17 +0000

I think Harry Truman was a man from whom we could all learn some humility.

He was the 43rd Present of the United States of America. He was a different kind of President. He probably made as many, or more important decisions (for example he decided to drop the atomic bomb on Hiroshima) regarding Americas history as any of the other 42 Presidents preceding him. However, a measure of his greatness may rest on what he did after he left the White House.

The only asset he had when he died was the house he lived in, which was in Independence Missouri. His wife had inherited the house from her mother and father and other than their years in the White House, they lived their entire lives there.

When he retired from office in 1952, his income was a U.S. Army pension reported to have been $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an ‘allowance’ and, later, a retroactive pension of $25,000 per year.

After President Eisenhower was inaugurated, Harry and Bess drove home to Missouri by themselves. There was no Secret Service following them.

When offered corporate positions at large salaries, he declined, stating, “You don’t want me. You want the office of the President, and that doesn’t belong to me. It belongs to the American people and it’s not for sale.”

Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, “I don ‘t consider that I have done anything which should be the reason for any award, Congressional or otherwise.”

As president he paid for all of his own travel expenses and food.

Modern politicians have found a new level of success in cashing in on the Presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Political offices are now for sale. We have seen the same from British politicians, both Tory and Labour.

Good old Harry Truman was correct when he observed, “My choices in life were either to be a piano player in a brothel or a politician. And to tell the truth, there’s hardly any difference!”

I wonder how many people, whether in politics or business, could have such a powerful resume written about them.

The Litigation Process

YourACP — Thu, 02 Feb 2012 17:46:31 +0000

We are going to consider the four stages to obtain a County Court Judgement. These are pre-litigation recovery action, completing the forms, entering a defence and the hearing. If there are no disputes and you have good records, there is no reason why the court will not find in your favour. However, the debtor may still not pay. You will then need to consider enforcement proceedings. This can start to get very expensive so we would recommend you decide what enforcement action you will take if the debtor does not pay when you have judgement.

First we are going to consider work you should do before litigating to give yourself the best chance of success. The court will expect you to have tried to resolve your dispute in other ways. Also, you may need to show the judge what you have done to try and settle the dispute. Keep records and copies of all correspondence or other steps you have taken to try and resolve the problem. Also, make sure you have the full name and address of the debtor; if it is a company, you will need the full company name and registered office. This should be on the company’s letterhead. If you cannot find the registered address, you could use a trading address instead.

Before litigating, you should write to and attempt to call the debtor at least once. Make sure your letters remind the debtor of the outstanding amount, when you expect payment and what your next action will be if payment is not made. If your initial attempts do not work, send a letter to the debtor giving them a final chance to settle. Make it clear that you will proceed to court action and set a deadline for when you expect to hear a response from them. An example letter can be downloaded from the ACP website. If this is unsuccessful, you will need to complete a claim from, available from your local court or on-line in England and Wales.

We are now going to discuss completing the forms. You need to complete claim form N1.

To complete the N1 form you will need to provide details of the claimant, the defendant, brief details and amount of the claim. You’ll also need to sign the claim indicating this is a statement of truth. As you can see, if you have kept good records and know who your debtor is then the forms are easy. You will need to give a short history of the problem about which you are claiming. This is why you need to keep good records of all attempts made to recover the debt. Ensure you have a complete history for the case: receipts, contracts, letters and notes of telephone conversations, for example. Again, you also need to have the full name and address of the debtor. It is better if the name and address is shown clearly on all paperwork.

When you have completed and returned the form, the court will log the document and assign it a number.

Once the court has logged the claim and assigned it a number, you may ‘serve’ the claim on the debtor. In court they are known as the defendant. You must serve the claim within four months, by posting, faxing, or taking it in person to the defendant. Alternatively, you can leave it with the court to serve.

We will now consider the defence. The defence is the defendant’s opportunity to dispute your claim. If the defendant wishes to dispute your claim, they have 14 days from the ‘date of service’ (the date by which they should have received your claim) to give a brief explanation of why they are disputing it.

If the defendant files an ‘Acknowledgement of Service’ form they will get an extra 14 days to respond.

If the defendant doesn’t file a defence, make an application to the court to enter judgment for you. You will need to request a ‘judgement by default’ from the court. The court will normally grant your claim in full.

If the defendant does file a defence, you will have to wait until the court assigns a date. In the meantime you will receive an ‘allocation questionnaire’ which the court uses to decide how complex your case is, and how long it will take to hear.

At the hearing, the clerk of the court will call both parties into the room where the hearing is to take place, and both sides will put their case to the judge. The judge will give their decision, which will be confirmed in letter from the court a few days later.

If you win your case, the judge will state how long the defendant has to settle the claim – this is often one month. This amount can include expenses such as your court fees, reasonable travelling expenses, the cost of staying overnight if relevant, and up to £50 for loss of earnings if you had to take unpaid time off work to attend the court hearing. You can ask for the same for any witnesses you called, as long as it was necessary for them to attend the hearing. In Northern Ireland you can only claim the court fee.

If the defendant doesn’t pay as decided by the court, you will need to consider ‘enforcement’ proceedings. Enforcement proceedings are further court action to force the defendant to pay, such as having money taken from their salary.

For further information about deciding if enforcement proceedings are the right next step, please refer to next week’s article , ‘Selecting Appropriate Enforcement Action’.

Thank you,

Henry Mehta

In the eye of the Storm

YourACP — Thu, 02 Feb 2012 17:45:21 +0000

The UK Consumer Credit Market is in the eye of a storm, a near decade of uninterrupted growth and rapidly expending consumer credit market has come to an end.

In 2010 unsecured credit fell significantly with outstanding balances down by some £13 billion to £214 billion, with further contractions predicted this year.

And the reasons for this: On the supply side, funding and capital constraints combined with past record bad debts have effectively left lenders rationing the availability of credit and becoming particularly selective about who they lend to. And on the demand side, fears over job losses, particularly among public sector workers combined with house price reductions have left consumers feeling extremely cautious.

Survey results show consumer confidence remains low fragile with many respondents expressing concern about not being able to service future debts and for those who able showing a desire to save more (and thus spend less) in the future.

With the historical significance of debt-driven consumption to the UK economy, a prolonged contraction could have profound consequences on retail sales and the UK’s economy as a whole.

From a regulatory standpoint, lending institutions must now operate in accordance with far more robust capital holdings which will put pressure on their profitability and calls for the regulatory agenda to focus on consumer fairness, simplicity and understanding/transparency will continue.

While UK lenders have experienced some short-term relief through widened spreads and easing of bad-debts, going forward, changes to how firms do business will be required, in response to:

Market contraction
Rising interest rates
Regulatory pressures
Squeeze on funding

Thank you,

Trevor Jones FACP MICM ACIB

Director for Consumer Credit