Reference no: EM133059642

Task 1: Case Study. 

Company ABC Ltd provides specialist metal engineering services to a range of clients from local construction firms to major blue-chip food processing companies. ABC turns over approximately £4.5 million and among this were a few customers each representing over 10 per cent of total turnover and whose custom was highly profitable to ABC. One of these customers, XYZ Ltd, had always paid on time, but in late 2008 ABC was having to chase for every payment and payments were consistently arriving outside their due dates. This situation worsened and despite regular calls from the credit controller at ABC, and even calls from the directors of ABC, the situation still did not improve. The directors of ABC felt they were being given excuses about why payment could not be made on time that they simply did not believe. Eventually a debt of almost £200,000 had built up that wasn't being reduced and ABC were acutely aware that the consequence of this amount becoming bad would probably be their own insolvency. 

In January 2009, the directors of ABC contacted their accountant for advice and their accountant put them in touch with Resolvent whose approach is deliberately non-confrontational and differs markedly from the usual threats made by debt collection agencies to recover monies owed. Instead of sending a letter out of the blue, we asked the directors of ABC who already had a personal relationship with XYZ to call their customer and introduce us. In this way we were sure that we would be talking to the decision makers at XYZ. We then arranged to meet with XYZ and explained that ABC valued their custom and had no desire to go down the usual debt collection route with them but, of course, could not let the debt build up because of the knock-on impact on their cash flow. Invariably, we find that because we are a third party and have not been part of the often fractious interaction in the buildup to the outstanding debt, the debtor company is willing to be far more open and candid with us; and this was indeed the case here. Our first task was to work through the outstanding invoices one by one, to ensure that the two companies agreed on what invoices had been sent and what had been paid - this removes one potential reason for not paying. We resolved nearly 20 differences on ledgers where invoices had been missed or payments misposted. 

Our second task was to isolate any disputed invoices and agree that all the remainder were due and payable. We then worked through the disputed ones, resolving any problems by ensuring delivery notes and other supporting documents could be produced where required and also mediated on two invoices where there were issues of late supply and quality issues. At the end of this process both companies agreed exactly on the outstanding balance.

Next we tried to agree a payment schedule with XYZ but found they were unwilling to commit to firm dates. As part of our negotiations we explained that our role was to avoid any legal action but if we couldn't reach agreement with them we would have no choice but to recommend to ABC that they commenced legal action. As the debt was not disputed (we had been though this earlier with them) this could take the form of County Court action, or even a winding-up petition. Further discussions ensued, always amicable and professional.

We were even shown copies of XYZ's management accounts and business plan and it soon became clear that the reason for the late payments was that the sale of a freehold building that they owned had been delayed far longer than they had expected, depriving the company of cash that they had relied on receiving. Once we fully understood the problem we were able to agree with XYZ that their solicitor would give ABC an undertaking that their debt would be paid from the sale proceeds of the building, thus giving ABC the security of knowing their debt was to be paid, and also giving them the comfort to carry on trading with XYZ while the matter was resolved. ABC found that their understanding and reluctance to follow conventional debt collection routes was further rewarded by an enhanced relationship with their customer and a significant increase in the volume of trade between the two. 

QUESTION:

1. What is the Executive Summary of the given case?

2. Background of the given case?

3. Case Evaluation of the given case?

4. Proposed Solution

5. Conclusion

6. Recommendation