Money

The art of debt collection

 JOSEPH ESSEY

AS the old saying goes ‘a sale is not a sale until it is paid for’. And one of the biggest chokeholds around the neck of fast-growing small businesses is customers who pay late and/or default on payment.

Luckily, there are some relatively straightforward and practical steps that businesses can employ to get customers to pay sooner and minimise bad debt write-off s.

SET YOUR TERMS CLEARLY AND EARLY

Have customers sign a Credit Application agreeing to your terms and conditions of trade. I recommend having this prepared by a commercial lawyer to assure that this agreement gives you a level of legal protection which you can confi dently rely upon should a customer try to avoid or dispute their obligations.

At this point you should also Assess the credit risk of the customer based on the information they have provided on the credit application. Credit Reporting Agencies such as Creditorwatch or Veda Advantage provide an effi cient and reliable way of doing this for a fee.

Once you have approved and setup the account, Send a welcome lett er which clearly highlights your customers payment terms, their credit limit, ways they can make payment and any other key terms you want them to be conscious of.

CONVENIENCE IS KING

Make it easy for customers to pay by giving them multiple ways of sett ling their debt. Most businesses should at least off er EFT/Direct Credit & Credit Card as options and depending on your business or industry you operate in you should consider other options such as BPAY, Direct Debit and Buy Now Pay Later.

It is also important to have a writt en down policy and process for taking further action if and when required. Depending on the circumstances this could mean escalating to someone higher in the customers organisation, stop supply measures or commencing a process to legally enforce payment. Th e key to this is making your policy easy to follow for your staff so action will be taken in a timely manner.

ESTABLISH A CULTURE OF ACCOUNTABILITY

Be proactive with your collections from the beginning by following up on payments when they fall due. It is much easier to form good payment habits with a new customer then to try to change bad habits that have already been formed and, from the customers perspective, been accepted.

Relationships are as important in collections as they are in sales. Direct and/ or train your collections team to establish a good repore with your customers as it is human nature to want to help those we like. It is also important to involve your sales and management team when necessary as they will usually have relationships with the customer that they can leverage on.

BE PREPARED FOR CUSTOMERS WHO WONT PAY

While it is important to follow good collection principles, despite your best eff orts you will likely still encounter some customers who don’t pay. In these “last saloon” circumstances there are still options available to you.

Firstly, you have the option to register your commercial interest in the goods you supply on the PPSR Register. Registering your interest correctly on the PPSR before things go wrong can protect you and give you extra rights in the property it’s registered over and could place you in a higher priority to get paid ahead of other creditors.

If a customer consistently pays late, or you have concerns over their long-term viability, you should consider moving their payment terms to Prepay or COD or if this isn’t an option closing their account entirely. You should always consider other factors such as how profi table the customer is and the risk level of default as part of this decision.

Finally, when att empting to collect a doubtful debt one option is to place a default on the customer’s credit fi le with a credit reporting agency. Another is to refer these to specialist debt collection agencies or a commercial lawyer to pursue. In both options you should give the customer forewarning of impending action (no more than 7 days) and you should be ready to move quickly if required to.

Gett ing customers to pay is one of the biggest frustrations for business owners and is oft en a chief reason for business failure in fast growing businesses. However, being proactive and willing to invest a litt le bit of time and money in tried and tested trusted procedures can help you turn your debtor collections into an asset that drives your businesses growth plans.

Joseph Essey is an Outsourced CFO and has over 15 years’ experience helping businesses to manage their financial position and achieve sustainable growth. He is a part of Business Growth & Exit Specialists, a one stop shop, business growth, future proofing and exit service provider for Small and Medium Enterprises. Visit: www.bges.co.

Our mission is your CONTROL

 JONES PARTNERS

SMALL and medium businesses account for more than 50% of GDP, but when it comes to insolvencies, this category of businesses is much more statistically significant.

According to the ASIC (Australian Securities and Investments Commission), almost 80% of failed companies employed less than 20 employees and approximately 85% of failed companies had less than $100,000.00 in assets.

Th ese businesses are typically owner-operated businesses and whilst they are the backbone of the Australian economy are also the most vulnerable.

Th e pandemic has created a new set of circumstances that would not have been foreseen two years ago.

As we emerge from the pandemic completely unexpected challenges now appear. Th ese include the shortages of skilled staff , supply chain issues, and in some areas, consumer demand decline.

With the threat of rising interest rates and the urgent need for businesses to fund their emergence from the shutdown real issues are likely to emerge.

Insolvency processes are oft en perceived negatively by the general community which is unfortunate because Australian law is designed to assist business recovery and is probably the most advanced in the world.

Th e pandemic has prompted the government to further improve the processes and we now have a regime incorporating a simplifi ed debt restructuring process for businesses that are viable but for an unexpected glitch (such as a pandemic) and a simplifi ed liquidation process where the business is no longer viable.

In addition, the government is also reviewing the current Bankruptcy regime which would see the Bankruptcy default period for individuals limited to 1 year (from 3), where there is no misconduct.

Because of fi nancial stress people are also suff ering from mental and physical health problems and relationship breakdowns.

Jones Partners has been assisting these businesses and people for over 20 years and understands the challenges faced by privately owned and operated family businesses.

We are proud to be the winner of Th e Business of the Year 2021 and Th e Professional Services of the Year 2021.

We continue to provide clarity and tailored solutions to fi nancial diffi culties to enable businesses and individuals to regain control.