Mate’s Rates are more expensive than you think!
Of the debt situations that I see in my role, one of the more troubling yet increasingly common occurrences is F&F or friend and family debts. These seem to be more prevalent in the trades, but we are seeing it across all industries.
These kinds of debts have a particular set of challenges that we see time and time again.
They include emotional leverage, lack of documentation and lack of adherence to policy. In this article, I’ll look at why these issues are often not conducive to good business.
With F&F transactions, the work done is often unquoted as there is a feeling of “they will look after me”. And it’s often when the invoice arrives and it is more than was expected that the trouble begins.
Not having a quote – or better yet a rage of quotes – means that there is no defined value of works, making it impossible to ascertain what constitutes a “good” deal.
Accurately assessing the value of work done after the fact, especially without market comparisons, is very difficult. Auditors and quantity surveyors train for years to be able to do this and still cost overruns and miscalculations occur even with this level of expertise.
How then can a layperson be able to know whether their mate “Bob” has looked after them or fleeced them. In cases like this, it often depends on the mood or current state of the relationship.
No matter how selfless or generous a person is, we all have a ledger in our heads of favours done for and received from F&F.
And often the view on the deal received has more to do with the state of this mental ledger, rather than the true value received.
When preparing clients for disputes tribunal hearings against F&F it is always a struggle to keep the focus on the situation at hand without “well I gave him this (water blaster/ car part/ trailer, etc) so should we mention that?
If a quote and terms are received and accepted, these uncertainties are removed from the situation and it doesn’t have to severely affect or even possibly destroy the relationship.
In larger organisations that have dedicated accounts or credit management staff, we see accounts for F&F of the owners or directors sitting outside of the normal credit procedure. This is usually because there is a fear of causing offence to the debtor or their F&F within the organisation.
Depending on their involvement in the credit management procedure, the first time that the director or owner hears of the overdue account could be 60 or 90 days down the track, making for a more uncomfortable conversation than is necessary as the debtor may not have received any reminders that could have resolved the issue.
In summary, if you keep business business and friendship friendship, you should be able to keep one without it being at the expense of the other.
Just a thought.
Nick Kerr
