Security firms have fairly unique problems in the world of credit control as their services are mainly delivered off-site, either on a customer’s premises or on premises that the customer may be working from, writes Martin Hughes, Head of Commercial Recoveries at Spratt Endicott.
Spratt Endicott Solicitors has been working for security firms for many years and as a result has been able to identify the main factors which inhibit debts from being collected in this industry. These factors fall into two categories: internal and external. Internal factors may include invoice delivery, quality of service and agreement to the service required. External factors cover the ability of the customer to pay and their internal procedures which may impact on their ability to pay. This article discusses two internal factors that are the most straightforward to address:
1. Identify your customer
If the initial account opening process or customer database is not maintained accurately, it is with some certainty that this will exacerbate any problems in the collection of accounts as they fall due. It is not just the correct name and status of a company (legal entity) that must to be entered onto the database, but also the correct invoicing address.
To highlight this, let us look at an example of one of the most common errors which occur:
Security firm A is providing an on-site security service for customer B. However, customer B is a builder/developer or site manager, and the address given when the account was opened was the site address where the security is being provided. The invoicing address is wrongly set up as this site address and therefore invoices are sent to the wrong address. The result is slow or non-payment. When the site development has been completed, final invoices will invariably get lost and the problems will only worsen.
It is essential for all customers that the correct invoicing address is identified at the point of opening an account. Unfortunately, this does not always happen as can be seen from the above being a prime example.
2. Agree the service required
Security work can alter in its requirements, the number of security staff needed, or even the ratio of dayshift to nightshift personnel. The level of service or extent to which the security firm has responsibility must be properly identified from the outset. Due to the different requirements of customers it is essential that the service being provided is fully encapsulated in a properly drawn contract that all sides have signed up to. This is especially the case where the contract is of a substantial or complicated nature.
Failure to fully confirm the service to be carried out can lead to serious disagreements and again non-payment of invoices. Such disagreements can also lead to the loss of an important client and reputational damage to the service provider. There have been one or two major incidents in the news over the past number of years that have seriously damaged the reputation of some major firms.
Theft sometimes occurs on sites where a security service is provided. This could be by straightforward thieves or may on rare occasions be “an inside job“. This may not only lead to non-payment of invoices but also a claim for damages. There needs to be something in the contract which specifies a limitation to any liability.
An ongoing problem is the need to withdraw a service due to non-payment of invoices, or where there is a suspicion of insolvency. If this is not dealt with in your contract and you “pull“ the service you may find yourself open to a claim for breach of contract.
All of the above have an impact on the collectability of your invoices affecting cash flow, bad debt and reputation. There are, of course, a number of other factors such as correctly drawn up Terms and Conditions, the credit cycle, dunning letters and the importance of a dispute resolution system that can all improve a businesses ability to collect debt.
Any questions
If you have any questions relating to your own business or would like any advice on recovering a business debt, contact Martin Hughes, Head of Commercial Recoveries at Spratt Endicott Solicitors, on 01295 204131, or email [email protected].
