Chasing unpaid debts from clients or customers is unfortunately an unavoidable part of business. The challenge is that when debts go unpaid it can seriously impact your business’ cash flow and profitability, so establishing a strategy to minimise unpaid debts is crucial.
So, how can you minimise your debt collection burden and recover any unpaid debts?
Step 1 – Focus on prevention before the cure
The first step to getting on top of the debt collection challenge is to prevent unpaid debts from accruing in the first place.
There are several ways you can streamline your accounts payable processes which will ensure you have less overdue payments to chase. The goal is to make it easy for debtors to pay, incentivise on-time payments and disincentivise late payments. Ways to do this include offering direct debit payments so you’re paid immediately, automating invoice reminders so debtors are reminded to pay and you don’t have to remember to remind them, enabling credit card payments, offering discounts for early or on-time payments or charging interest on overdue payments.
It also makes sense to do your due diligence on clients before working with them to make sure they’re not in liquidation or deregistered, which will reduce the chance that you enter in an agreement with someone who is unlikely to pay. You should also ensure you have signed contracts with customers or clients which cover payment terms so expectations are set from the outset and you have some protection should things go sour down the track.
Step 2 – Chase the debtor
Even with the strongest accounts receivable processes in place, every business will still find they will need to contend with clients or customers not paying on time.
There are several actions a business can take to chase and recover outstanding debts. The best place to start is to keep excellent records of when payments are due and whether they are paid or unpaid so you can monitor who needs to be chased and when. Accounting software will do a great job of this, but you will still need to set aside time to review outstanding debts regularly.
Once you have a clear idea of which payments are overdue, the next step is to contact the customer or client to chase payment. It’s important to have a record, so ensuring your communication with the client or customer is in writing is important. If you would like to also speak to them on the phone about it you should, however you should keep a record of any calls and what was said. Sometimes having the conversation over the phone can be more impactful.
This part of the process can be a sticking point for many businesses, as having these difficult conversations can be uncomfortable. It can also be incredibly time consuming. This is where working with a third party to follow up clients or customers on overdue payments can be a useful strategy.
Step 3 – Take action to recover the payment
If streamlined accounts receivable processes and following up debtors repeatedly isn’t working, then it’s time to take more serious action. This is when working with a third party such as a debt collector may prove useful. This is also the time to consider legal action. This is a serious step which should only be taken if it’s clear that the relationship has irreparably broken down and the debt is significant in size. Speak to your solicitor about your options, but typically legal action may involve a formal legal letter of demand. You may also be able to do a property search on the Personal Property Security Register (PPSR) to recover unpaid goods.
Looking to minimise the debt collection burden? We can help. Keeping Company now offers debt collection services as well as advice on how to strengthen accounts receivable processes. Contact us today to find out more.
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.