Hey, how can that be so difficult? I had no clue what credit control was, not even ITC, (they assess the clients credit worthiness) all I knew growing up was that my mom might not have had much money, but she always bought what she could afford and paid on time.
That was the world I knew. My goodness was I wrong. I remember at the beginning someone saying to me, “Mike I know you have sent out statements to your clients but you should call them before hand.” I said, “No need, as they would never have bought if they could not afford, and a willing buyer is a willing payer. “
In those days most customers paid by postal order, I said to my friend, I am now leaving to go to open my post office and I have a huge bag like Santa Claus uses to load up all those postal order monies.
I opened my post box and the only letters I got was my bills I had to pay.
Russon, welcome to the world of debt collecting. I was furious. I could not believe people buy and don’t pay.
So I very quickly learnt about ITC, credit control and implemented a deposit for when the client places the order. In a nutshell the start of perfecting the client’s ability and willingness to pay.
Now with the naughty clients that didn’t pay, I drove to their houses at night and demanded my money. But soon I discovered some clients were much larger than me. So I thought I need to get smarter. I once saw when someone did not pay and the sheriff of the court was involved he would deliver a blue attachment order to the clients’ house. In which they would list the client’s items of what they would repossess if they did not pay their bill.
I thought great I will do that. But mine was in-house. Not really the right path. So I made up my own blue attachment order, making it look like the real deal and that worked wonders. As now I was the third party. The guy in the middle receiving instructions from my client to attach goods.
I would say to the customer “Mr Jones the value you owe is R1 000. When goods are attached and sold on auction one only gets back 25 % of what they are worth. So we attach your TV, hi-fi and couch worth R4 000. Sold on auction we get back R1 000. Mr Jones, what I want to ask you is would you over time buy a tv, couch and hi-fi again”? He says of course. I then say, would that not cost you around R4 000 plus to replace? He says yes.
I say Mr Jones a suggestion: You only owe R1 000, but it will end up being R4 000 if you replace your goods as indicated. Would it not make financial sense to beg, borrow or steal within the next seven days to pay your R1 000 bill?
Bingo they paid every time.
But then one day I approached a client who was a lawyer and he said this so-called blue copy for attaching my goods is not properly authorized, so I will take it and take you to task.
Then I decided to learn the route of having to use attorneys. Goodness, I should have become an attorney as you learn the whole procedure of letter of demand, summons commencing action, apply for judgement if unopposed, then either emoluments or writ of execution. Then you get rescission of judgement. Bla Bla Bla…
I learnt the best way to also collect is to irritate the consumer. I will often call 12 to 1 am in the morning.
The client would be furious, and I said lucky you’re my fourth client as I have 50 more to call which would be 3 am in the morning. Then said but if you paid your account on time would I be right in assuming I would not be having to make these calls.
Then when I got rude clients, I would call their boss and say maybe you can help me with one of your staff members. They have not paid an account and I’m trying to explain we are applying for an emoluments order which means your company by law has to deduct the amount off your salary but your staff member just swore at me and put the phone down. So where you can help is saving him the embarrassment, of having his company involved and monies he will have to pay anyway deducted from his salary.
85% of their bosses agreed to pass on the message.
I was guaranteed 100% calls from the customer fuming, by saying how dare you call my boss, do you know how this affects my credibility. I simply replied Mr Jones your boss said to me if you swear again at me or raise your voice or don’t pay your account on time I am to call him immediately. Now must I call him, or are you going to be a good boy from now onwards.
Meek as a lamb!!
But as the sales grew from Cape Town to throughout South Africa I couldn’t handle everything.
For the first three years, I worked for 18 hours a day, seven days a week.
I decided I needed a finance company to take over. I was introduced by a mutual friend Richard Grenville to a company called Proash. The owners name was Geoff Ashby. An exceptionally talented man.
But damn their fees hurt. They took 35% of the capital and the full interest fees. Which was 31% in those days. I said if my quality is good would you reduce my fee to 30%. Proash agreed.
Then when my time came for renewal I went to them to discuss my quality of business and my fees reduced to 30%. I knew I delivered the best quality business out of everybody they financed.
Richard Grenville accompanied me as I was very nervous being only 23 years old.
They said they are not changing my fees. I said can you show me where my quality was poor to justify their decision. The truth was they never even bothered to look at it. They were just not going to budge.
I was so angry, and I never swear, that day I said, Richard, I am leaving them. He said Mike be careful without being able to offer longer terms you are not going to have a business.
At that time, Unibank was crying out for business, so I went to them, then another company gave them deals that were fictitious and they just closed their doors to everyone and stopped financing our industry.
I then found a finance house called Rand Trust in Cape Town, their structure took full finance fees and a discount fee of the capital, but with full recourse. Plus they held back a 25% retention for risk purposes, damn they knew how to cover their ass.
But when they recourse a deal that was in arrears they would not only reverse the payout but also still charge their discount fee.
The one advantage I must admit helped was with them doing the admin collections etc, I could focus on the sales. It’s like American football, you are running with the ball and you have your team to bump everybody out your way so you just focus on that sprint to score the winning try.
My sales grew from 200 orders a month to 500 orders, what I didn’t know at the time was I was now their biggest client by far, their cash flow could not afford me. So they called me in and said we are going to give you a better-discounted fee, but increase your retention to 50%.
I was horrified. I said if you paying me out less than half my capital I can’t afford to pay for my stock and all my people. There is not enough money in the sale. They replied yes but over time you will soon get your money back from the spillover of the retention account. I said I already just make it as you are taking 25 % retention now you want 50 % retention. By the time that spills over I won’t have a business.
To stop the bleeding I immediately changed the marketing of the business to increase cash and credit card sales by 300 %, but I was using my cash reserves I had built up over all the years.
But I realised long term, with banks you’re just a number. If they have a board meeting one day and decide not to finance our industry then they turn the tap off to you within 24 hours. Not 3 months notice to help you, they only help themselves.
I realised then and there I have no choice but to start my own financing business. Fortunately, I had learnt as a client how the structure works. I must admit on the internal controls, I had no clue. And would have haemorrhaged had I tried to do it alone.
So I started my own financing business over 24 months. I was very blessed to have my brother Graham to join the business as he was exceptionally strong in the IT side. I was also very lucky as the previous founding member of rand trust, Alan Ravenscroft who handled their entire admin side, took a liking to me and would come in dressed in a huge jacket and hoodie so he would not be recognised and help Graham with advice on how to structure the admin side and write the correct code for the instalment sales agreements and collections.
Due to no more deals going to Rand Trust obviously the retention money started spilling over. This was quickly enjoyed for the financing of the growth of our business.
I have to admit when I originally received the costing for setting up a finance business it ended up being ten times that costing.
I realised that once the sunk cost had been absorbed by our businesses if I offered finance to third parties who trades similar to us, the take on costs would be negligible.
So I sent the word out. My goodness, they came like a herd of buffalos, they said Mike how blessed are we to be financed by someone from our industry. To truly understand how we operate and how to add value to us, so over time, we ended up and still finance 85 % of our industry in South Africa.
I thank all of you out there that we do finance and hope we are giving you the value and service you deserve, always know I have an open door policy directly to me. Like your staff too, people are not perfect, we must never judge the problem by the problem but by how we can fix it.
I later expanded the business by factoring businesses that supplied their products to blue chip companies, for example, they supplied the Spar group, Shoprite, Game, CNA etc.
Then if they had a factoring agreement, we would then allow trade finance, we would import their product directly from overseas and supply it to their clients.
For laymans terms those who are unsure of how the three types of financing works I will give a simple explanation.
The client has his own business and markets his products to consumers mostly on an appointment basis who are happy to pay for their product up to 36 months. But he needs the cash flow now. So the clients sell us the invoices and we pay him out upfront. Then we will use our infrastructure to collect on the instalment sale agreement of up to 36 months.
Client supplies his product to Shoprite, who will pay the client in up to 60 days. Clients need the cash flow.
So he factors the invoice with us. Shoprite acknowledges we are the factoring house. So we pay out the client on the invoice less our discounted fee and we hold a retention of 25 %. When Shoprite pay us out on the full invoice within 60 days then we give the client their retention money back.
Risky, as if the client defaults on getting his goods sold we are stuck with it. We usually offer it if they have a solid track record of factoring. We simply pay his supplier in full and import the goods for them and deliver directly to their customer. We usually receive our money once we have factored the invoice.
I did bring on later a financial accountant. He was from my church and was very impressionable, as he’s far more educated than I am and is a chartered accountant. I remember asking him “What do you wish to achieve in our business?” he replied. In years to come, I want to be remembered for taking it to another level and reflect back on the difference my achievements make.
I said to him the ball is in your court, you make take full reins and build the finance company, and I will focus on building the consumer finance and the development of potential business owners.
Boy was he right, he definitely did take it to another level. He got bulldozed by my clients and he cost me millions. The one rule I have and do not allow unless special circumstances allow is a loan account to fund their cash flow.
Well, he got talked into that and we got a hiding of note. He was so gullible and believed what they told him. To give you one example of many, one of our clients Joli Toys in JHB, owned by Clive and Roger Callaham literally hypnotised him. I recall on one situation without telling me he increased a 40-foot container of toys for Spar and Game to four forty-foot containers. Well, that shipment never arrived in time for the Christmas rush. Spar and Game retail stores cancelled their order due to late delivery. The client had all the toys in their warehouse. Which now belonged to us as we had paid for them. But they illegally started selling it for cash to smaller businesses and keeping the cash for themselves. By that time, I had no choice but to be involved so first thing I needed was a spy to watch our stock, so I told their store manager to tell me when the stock is taken out and in return I will pay his salary as I had by then put the company into provisional liquidation.
Then I learnt later I had to even buy all my own stock back out of the liquidation.
I sold few shipments to Reggies toys myself. Then with the rest I just said well God says if you give you receive, so without wanting anything in return I gave enough toys to over four children’s homes. The previous accountant knew I was onto him, as he had messed up all our other factoring clients, so he applied for all his leave and promptly resigned. Leaving me with the mess to clean up.
So rules of business:
- Never underestimate your ability and be intimidated by someone more educated. Never just trust, manage by inspection, not expectation.
Think of it this way I had a successful business he joined, it wasn’t I joined his successful business. He has no proven track record of business success just a paper stamped saying he has a Chartered accountant degree.
You can’t beat streetwise.
Since then new clients have been rebuilt, I have learnt to also focus on you achieve more with less. Meaning specialising intensely in consumer finance that must be product related.
Again I must give huge thanks to our incredible staff that have enabled us to achieve such great results, especially Dirk Fyfe, our financial Director whom I have had the privilege to work alongside for the last 16 years.
We will never compromise our quality of service and will consistently strive to give our customers the best that they deserve.