Most small businesses do not foresee the problems that unpaid invoices and overdue accounts inevitably present to their financial situation. It is the fact that this takes them by surprise that leads to the overbearing situations many businesses find themselves in.
To this end, it is best to have debt collection procedures in place. If you do not already, you should start making them, even if it has not presented itself as a problem as yet. Here are a few steps to help you get well on your way to effective debt management –
Have a good contract in place with your clients
It is of paramount importance to invest in the advice and guidance of a legal representative from the outset. This will ensure that your business is protected in the case of non-payment and you can more easily recover overdue accounts. Essential terms of the engagement need to be spelled out explicitly, does your service agreement account for –
- When goods will be delivered / services will be performed?
- The price expected for payment for the goods / services?
- How long the engagement will be for?
- Is action in the case of non-payment accounted for?
- Is interest payable on overdue accounts?
The first thing done by a legal representative, in reviewing a case before proceedings are instituted, is going over the agreements in place.
Develop procedures for the collection of overdue accounts
Procedures need to be developed in line with contract terms. For instance, if you offer a 30 day account on invoices, you need to have procedures in place to make contact with your client when the debt falls, say 35 days overdue. This will significantly increase your likelihood of recovering your overdue accounts, and ensure your debtors know that you are serious about recovering the funds they owe. Are they still not paying? Have a process in place that accounts for this, perhaps another form of contact would be reasonable at, say 40 days? It is a comprehensive debt collection process that makes for less risk, less stress, and more cash flow.
Even an activity as straight-forward as debt collection is regulated by a myriad of rules and regulations. The regulatory framework operates nationally for the most part, although each state and territory also has additional laws that you need to be aware of before commencing any debt collection activity. Contact us for your free e-book based on the ACCC and ASIC industry guidelines on compliance.
Try all forms of contact available to you, and keep records for every attempt
If you are attempting contact with no response, try another medium. Whether it is telephone, email, letter, SMS, social media, or a visit to the premises of the debtor, you should utilise all options available to you – after all, you are following up on debt that is owed to you. In doing so, you must keep within the guidelines referred to above.
Debt collection is an imperative aspect of any business. Work can come through the door, but without being paid for that work, what’s the point? Focus should be afforded to your debt collection procedures, and where necessary, referral to a reputable debt collector may be the most effective, efficient, and stress-free option available.