WITH A MARKET capitalisation of some R352m, JSE-listed building supply company Mazor Group is an odd source of inspiration for my small business column this week.
However, the company has come up in discussions I have had with two separate asset managers in the last two weeks and with Mazor interim results out on Tuesday, I thought it would be quite topical to discuss an aspect of its business.
The gist of the comments around this firm was that it has never quite shucked off its small business mentality when it comes to debt collecting. According to the asset managers I chatted to, if you are as much as a day overdue with your account you will get a friendly phone call from one of the financial controllers to find out what is happening.
It seems to be paying off - the company generated R40m in cash, another R4m in interest income and paid finance costs (interest) of less than R300 000, all the while amassing a cash pile of around R115m. Not bad going in the middle of a recession where cash and liquidity are under serious strain.
The importance of credit management, debt collecting and cash flow management is a theme that seems to be coming through this financial crisis, offering many really good lessons for businesses of all shapes and sizes.
Innovative salary structure
I recently chatted to a South African entrepreneur who operates a vehicle financing business and asked him who he reckoned was the most valuable person on his staff. Without hesitating, he pointed to the lady who manages his debt collecting. He also gave some insight into how she is remunerated each month.
Obviously with credit and risk management being a key part of a leasing company, this lady is paid a basic salary with a performance bonus linked to the percentage of bad debt recorded each month. In exceptional months when bad debt is below the targeted band, her pay can be in line with what senior directors take home each month.
Debt collecting is one of the least fun aspects of a small business. Owners often shy away from aggressively pursuing outstanding accounts because they are afraid they will offend their customers, or they simply don't prioritise getting cash in. Either way, they are hurting themselves in the long run.
Teamwork can suss out trouble
Small business mentor Bertie du Plessis sums it up brilliantly: "You can do everything wrong and if money is paid into your bank account, you are in business. You can do everything else right and if money is not paid into your account, you are out of business."
Be innovative in rewarding staff who help you establish a good collections system. I worked in a business once where every member of the team (sales, finance, admin) was asked to report when they got a bad feeling about a particular client.
The thinking behind this was that while sales staff would often see a prospect through rose-tinted glasses and do everything to convince themselves that the potential client was a cash cow, the person who comes to fill in the paperwork or interacts with somebody else within a different part of the client's business might see or hear something different.
A perfect example of this was when the receptionists from the customer and supplier were chatting and the woman working on the customer's side let on that there wasn't money to buy things like milk for tea and coffee, or paper for the printer.
A business like Mazor shows that if you start small and manage your debtors aggressively, your business can grow into a powerhouse.
- Fin24.com