Matthews Folbigg Credit Management Guide
Helpful Hints on Credit Management
- You need to keep your credit process hassle free by implementing effective credit policies, credit application forms and terms and conditions.
- Whenever we provide goods or services on a “bill-and-pay-in arrears” basis we are investing in our customer’s business. We are granting credit by lending them money for a period of time.
- To avoid your customer turning into a ‘debtor’ it is important for you to set up systems within your business to know who/what you are dealing with. This will also help you assess whether this customer has the capacity and commitment to pay.
Simple Tips for Effective Credit Policies and Procedures
- Implement proper in-house credit policies, procedures and staff training.
- Ensure that your terms and conditions are effective (including a Retention of Title clause and compliance with the Personal Property Security Act).
- Make sure there is a proper Credit Application that has been completed in full.
- Undertake appropriate searches eg. ASIC, NPII, Trade References, etc.
- Consider if taking security is appropriate and obtain a guarantee if the debtor is a company.
- Develop a system to protect source documents. eg. Invoice, Orders, Statements, Letters, etc. You must be able to prove a debt to enforce it.
- Implement a system of on-line registration under the Personal Property Security Act.
The Credit Application
This is the primary source document and could make or break any future action required to recover your outstanding account.
A Credit Application serves the following purposes:
- It is an information gathering tool.
- It is an assessment tool to determine the amount and duration of credit.
- It is a legal document that binds the applicant to your terms and conditions.
As a commercial creditor the credit application form should provide the information and authority to enable the Credit Manager to:
- Accurately identify the entity with which you will be dealing;
- Establish the applicants’ credit worthiness by way of checking trade credit references and other business reports (ABR, Baycorp, D&B, The NCG bureau network etc);
- Obtain appropriate security; and
- Allow registration of any legal interest on the new Personal Property Security database.
Factors to consider when drafting a Credit Application:
Legal Name
Ask for the legal name of the applicant in your Credit Application. Also ask for the name under which the applicant trades or does business. It is important to sign up the applicant with their correct legal name.
Style of Business
- Whether the business is a:
- Sole Proprietorship or Partnership
- Corporation
- Trust, Association or Co-operative
In the case of sole proprietorships and partnerships the liability extends to the individuals running the business. Therefore it is important that the personal details of the principals (including full names, home addresses and telephone numbers) are sought on the credit application.
In the case of a business operating under a corporate structure, check the details of the application against the records of the Australian Securities and Investment Commission (ASIC). A simple, free online search of ASIC records will reveal whether the applicant has been the subject of any recent wind up proceedings by creditors.
A more detailed search (available at nominal cost) can reveal much more useful information about:
- the applicant’s share capital;
- who holds office as directors; and
- where the applicant has their registered office and principal place of business.
Check this information against that provided by the applicant.
When dealing with a Trust always sight the Trust Deed to ensure that the applicant is acting within the deed guidelines.
Tip
The ASIC provides a service where you can receive immediate notification of any forms lodged by a company.
The Company Alert service can be useful in helping to track the fortunes of your significant customers and importantly if any application to wind up a client company has been lodged with the Supreme Court. The best news of all is that it’s free!
To find out more about Company Alerts visit www.asic.gov.au.
Bank Reference
Ask for a ‘borrowing account’. Get the account numbers and also the Account Manager’s name. This may assist with enforcement proceedings by way of Garnishee Orders.
Current Trade References
Normally three references are requested. If possible ask for one trade reference from your own industry area. This will allow you to find out if the applicant has been refused supply from others due to failure to pay.
Contact Details
It is important to obtain signing officers and accounts payable contacts, ie: email, telephone, mobiles and fax numbers.
An email address is a vital tool of communication and can aid quick collection and transfer of documents, especially when a customer claims that they have not received an invoice. In the modern era if your client is an individual you may ask for their face book page details. This too will help with communications.
Authorised Signature
The credit application should be signed by someone who is authorised to do so. It should then bear the person’s title and the date and place of signing.
Terms and Conditions
The credit application should bear the terms and conditions of sale (Refer to the section below on Standard Terms and Conditions).
Standard Terms & Conditions, what’s the point?
Why have them?
It is vital that if you have terms and conditions, you use them correctly. This means that before a contract is made the customer must be told that the goods or services will be supplied “subject to the supplier’s standard terms and conditions”. The best way to do this is to attach the terms and conditions to the Credit application form and/or have the customer sign an order form which sets out the standard terms and conditions.
The Principal Clauses
Terms and conditions vary from business to business, but there are certain principal clauses that all standard terms and conditions should contain. These include:
(a) Description of the product or service – a contract must clearly describe the
product or service to be provided. Standard terms may make reference to a
given specification.
(b) Price and Payment – this clause should clearly spell out the amount to be
received and when it is due. Interest or other penalties for late payment are
often included.
(c) Delivery – the clause should stipulate where and when the product is to be
delivered or the services performed.
(d) Retention of title – it is often useful to include a condition establishing that the
product will only become the customer’s after the bill has been paid. Also a
clause creating an interest in the goods supplied that allows registration under
the PPS legislation is vital.
(e) Intellectual property rights – especially in the case of “high tech” products,
statements need to outline who owns the goods (and whether that ownership
is transferred or licensed). These clauses normally also refer to remedies if
the ownership is questioned.
(f) Jurisdictions in your terms should specify the law that applies to the contract
and the courts that will govern any dispute.
Tips
Tip 1 – Do not go to the trouble of having extensive terms and conditions if you will never use them. You would be surprised how many Credit Application forms we see where superfluous terms and conditions have been added – one set had a United Nations arbitration clause!
Tip 2 – Do not copy your competitor’s terms and conditions. Apart from the fact that they may be of no benefit t to your business (see Tip 1 above), you could find yourself on the wrong end of a summons claiming breach of copyright. They may also be to your disadvantage. Sometimes aspects of contracts that do not make sense are unenforceable and may sometimes render the entire contract void.
Tips 3 – Make sure your Romalpa clause complies with the PPS legislation that takes effect on 1.5.2011. Failure to do so will prejudice your rights to recover goods supplied.
Debt Management, Payment and Recovery Solutions Experts
With over 40 years experience in debt collection, our expertise in a variety of recovery actions gives you a distinct edge when collecting overdue accounts.
MatthewsFolbigg provides specialist debt management advice for optimal debt payment solutions, legal advice and enforcement.
We are geared to quickly and efficiently recover monies, and can assist either your business or your client’s business with the management of business cash flow.
Managing debtors and cash flow has become even more critical to business success and survival. Recent legislative changes have made securing your cashflow more difficult and important:
Question: Are my debtors steadily increasing?
Question: Are my debtors taking longer to repay?
Question: Am I managing debts in an optimal way?
Question: Do I have the resources and capacity to quickly recover monies?
Question: Am I proactively improving cash flow?
If you are asking these questions then you should call Matthews Folbigg. We can provide the answers.
Why use us?
- We provide end to end debt management and advisory services from advisory on debt management to enforcement.
- You have access to a broad range of legal services.
- Our experience ensures we obtain the best result possible in each case. This includes commercial and cost considerations as well as an analysis of your matter.
- We explain everything in plain English, make recommendations, and guide you through your collection decisions. Our results speak for themselves.
- Our team is abreast of legislative changes through ongoing in-house training and we regularly share this training with you at no charge through client seminars.
- We are fast, efficient and cost effective (with costs at court rates until the dispute is litigated). We do not charge commission, subscription fees or load our fees.
- We guarantee to issue all letters of demand and statements of claim within 24 hours of receipt of instructions. We guarantee that a member of our team will return
- We offer national coverage for the recovery of interstate debts, with our firm as your one point of contact. Our office is conveniently located in Parramatta, the geographic centre of Sydney.
Our services
- Debt management
- Payment demands
- Court recovery
- Bankruptcy proceedings
- Company winding up
- Skip traces
Review of Credit Applications and Terms of Trade
For further information please contact:
Stephen Jenkins
Director – Insolvency & Corporate Restructuring Group
Phone: 9806 7482
Email: [email protected]Stephen D’Emilio
Director – Litigation & Dispute Resolution Group
Phone: 9806 7474
Email: [email protected]Jeffrey Brown
Director – Insolvency & Corporate Restructuring Group
Phone: 9806 7447
Email: [email protected]Stephen Mullette
Director – Insolvency & Corporate Restructuring Group
Phone: 9806 7447
Email: [email protected]