Administrators were appointed to a steel fabrication and powdercoating business with outstanding debtors of $1.9M across five ledgers.
Debtor books are important assets in external administrations and Insolvency Practitioners (IPs) usually don't have the time or resources to design and execute a best practice recovery strategy when they are appointed.
WTC were engaged on day two of the Administration by a leading IP to:
- Review the ledgers.
- Urgently form an opinion on the likely pre-appointment debtors realisation.
- Recommend a collection strategy during the “trade on” period.
As there were no dedicated credit management or collection staff we met with the sales managers to conduct a line by line review of the ledger to estimate the likely debtors realisation.
Meetings were also held with the Financial Controller to discuss the ledger.
We also contacted the major debtors to verify account balances.
Key Issues Identified
- Inter-company debts of $500K on the ledger.
- Historical bad debts of $200K not yet written off.
- Sales staff responsible for collections with no guidance from the Finance Team.
- Poor control of the major debtor accounts.
- Little evidence of debtor management reporting.
- No Stop Credit Policy.
WTC was retained to develop and implement a collection strategy for the trade on period (one month) and then the “collect out” of both pre and post appointment accounts over a six month period.
A collection strategy was developed by WTC with the following initiatives introduced.
- Daily interaction between sales staff and WTC during the trade on period.
- Stop Credit Policy introduced to protect the Administrators post appointment sales.
- Weekly/Monthly debtors realisation report prepared by WTC for the Administrators (and subsequent Liquidators).
- WTC managed the collection of the major accounts.
- A number of smaller accounts outsourced to a debt collection agency with WTC providing instructions to the agent on behalf of the Liquidators.
- Prompt implementation of collection strategy resulted in strong cash flow during the trade on period.
- WTC best practice debtor reporting allowed administrators (and then liquidators) to report accurately to creditors.
- High level recovery rates maximising returns to creditors.