Credit Matters Blog

Having a Good Debtors Ledger and a Bad Debtors Ledger makes sense.

Kim Radok 11 August 2019

In today’s troubled times, when B2B credit providers have lost many of their rights due to legislative initiatives, insolvency and societal changes, creating good and bad Debtor Ledgers could be a beneficial strategy.

The problem with a Debtors Ledger containing both good and bad debtors, is that it provides few benefits for efficient and profitable operations. For instance, good customers largely require a maintenance-type interaction such as a monthly telephone or email contacts, answering customer enquiries, checking the account is in order, or verifying the status of invoices or credit claims etc. The employee managing this type of customer does not necessarily need a great deal of experience, if they have been properly educated.

The less experienced employee working in a Ledger with a mixture of good and bad debtors, may also miss opportunities to improve prompt payments, may not have the skills to explain to management why changes are required to operating formats, or understand all the issues associated when dealing with insolvency administrators. Spending time trying to deal with all the issues associated with bad debtors is one sure way of distracting your employees from achieving the best possible outcome from good customers.

Meanwhile, the “bad” customers comprising those waiting authorisation for write off, legal action, cause continuing operational issues, or need further investigative action, require an employee with a greater level of experience for effective actioning. The role of this employee, which should be of a senior management level, would include the following:

  • knowing how to frame conversations to write off bad debts;

  • liaise with lawyers and debt collectors to use legal action effectively;

  • create initiatives to deal with problem causing customers;

  • review operating formats with the view of creating more effective operations;

  • know how to deal with insolvency administrators, particularly in regards to preferential payment claims, etc.

The duties of this employee and their knowledge base, means effectively you have a “consultant professional” within your business without having to pay consultant’s fees.

With two widely diverse types of customers within the one Ledger, efficiency and effective actions are not always possible. In these situations, the good and bad Ledger strategy, can play a part in creating more effective operational outcomes.

Operating two types of Ledgers allows the business to create career paths for credit, accounts, customer service and new employees. The employee with an intimate knowledge of your business and a wide range of business experience has another level to aim for within your business. One of the reasons good employees leave tha business, is there is no higher-level position to aim for within the business. The chance to operate with bad customers in the bad Ledger offers that opportunity.

Furthermore, in age when “not knowing” is not an acceptable state answer to exposed problems, management and directors can more effectively keep up-to-date on the issues affecting their business. By reviewing the operations, reports and information produced from the bad Ledger, management and directors are also protecting their own interests.

The days of management and directors looking at reports with “eyes wide shut” is long gone. Annoyingly for all concerned these days, there is a litigation lawyer lurking in the shadows somewhere around a corner just looking for an opportunity to sue managers and directors for any sign of lax or less ethical behaviour.

It is obvious that we are now in “normal” business times where turbulence is the new norm. Managing debtors and cashflow, is of ever-increasing importance. It would seem therefore, a strategy of having good and bad Debtor Ledgers may be worth considering.