Selling a Debtor Book

W

Wildone

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Does anybody know of an company that 'buys' debtors from a company? I would be interested in selling a portion of the book that has swelled in size over the last 18 months, not because of anything other than a change in the business environment. The debtors owing the company has changed from a number of larger accounts to many smaller accounts as the market is more fragmented and people spend less. This, coupled with the fact that there are more customers has meant that our debtors book has more than doubled in volume yet the overall value remains roughly the same. I don't expect there to be a higher proportion of bad debts, some of the debts would not even be due yet.

I know it would have to be sold at a discount but this may make sense to me when I consider the improvement in working capital and the amount of time that would be available to the sales reps to focus on both the larger accounts and new business.

The front end of the situation has already been addressed by revising our credit policy and practices for business going forward.

Any thoughts appreciated.
 
Hi Weldone,

Despite what you say about the condition of the debtor book I fear that you will have to give a big discount and maybe also some security for any adverse shortfall.

Also, what do you propose to do with future debtors? Are you going to sell your debtor book every time it gets out of hand? Without knowing the amounts involved it is hard to give advice but perhaps you should consider engaging with someone to assist you in collecting the current debtors and setting up an effective system that enables you to stay on top of this issue going forward.

Furthermore the selling of your debtor book may take some time before any money is handed over to you.

All that being said, I cannot actually recomend a good company (as I feel they overcharge etc.) to buy your debtor. another alternative is to look at invoice discounting but again this is not cheap but depending on the amounts involved it may be cheaper than engaging with someone to assist you in staying on top of your debtor book.
 
I agree with Jack, I have a few companies that come to mind but like jack said they over charge and you will have to take big discount.

How about getting specialised legal firm to collect the older debts for you?
 
JQ2002 said:
I agree with Jack, I have a few companies that come to mind but like jack said they over charge and you will have to take big discount.

How about getting specialised legal firm to collect the older debts for you?
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Based on the info in the original post I fear it would be too early to get Legals involved. I think it is more an issue for an accountant to assist with improving the working capital issues the company appears to be experiencing.
 
Thanks Jack and JQ for the input so far.

I realise that it may be an expensive solution, but it would be a considered option that I would have to compare to hiring another employee/s to ring, send letters, initiate district court summonses etc. We may ultimately have an element of bad debt in there, which to date I have no reason to expect it to be greater than the current provision.

In response to JQ2002, we have started using the legal route for the older debts but find that it is a complete waste of time as the recovery rate is so low. I think that these days people pay little heed to a legal warning.

Jack, you ask what I propose to do with future debtors - I have already implemented stricter credit control and policies that we are trying to implement asap. This is to prevent a glut more of accounts that leads us to the situation that we are in at the moment. For example, we have almost 10k accounts (not necessarily customers!) on the books with values below €5k. Any new business below €3k will operate on a cash in advance basis, and any one off customers will be required to pay €2.5k deposit etc etc. We have a rang of measure in place. While we may lose some customers to competition I don't worry as we are confidant it wont be significant.

One other option that I would consider but have to do more homework first is to offer discounts to customers to pay up the account. There is a fine line there though before the sale would become loss making as the margins are so tight.

Hmmm, what to do, what to do!
 
You could try to get new customers to sign up to a Direct Debit.

Offer maybe two weeks extra credit as an incentive.

This will dramatically reduce your time spent on credit control.
 
I think the most cost-effective thing to do, would be to give the duty of chasing debtors to one of your office staff. Even an hour a day would produce results.
As part of my book-keeping services I chase up debtors for my clients, and though it can take weeks to get a result, most will run out of excuses and pay up.
 
You can sell these to debt collection agencies, we did something similar a few years ago and got between 7 and 22 cent for the €1.
 
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