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Small Business Debt Collection: Tips And Advice

As a small business owner, one of the keys to success is managing cash flow. Cash flow can be maintained by understanding how to manage your accounts and how to recover bad debts.

Managing your outstanding accounts effectively can be the difference between a successful business and a business that is traveling down the path to failure.

Preparing Accounts

When preparing accounts, it is important to clearly outline when the payment is due and to set out all the terms and conditions offered by your business.

Before engaging the client, bring to their attention the terms offered by your business and highlight to them when payment is due after an account is raised.

Managing your accounts

It is essential to monitor all your accounts in a timely manner as older accounts become increasingly difficult to recover. Managing your accounts can be done quite easily if you implement the following steps in your day to day business:

  1. As soon as you send out an invoice to a client, make sure to diarise in your calendar when the payment is due.
  2. Follow up the client with a short telephone call informing them that you just sent them the invoice and assist them with any queries that they may have.
  3. If your diary reminder alerts you and you have not yet received payment, send a courteous follow up email to the client attaching (and referring to) the original invoice, and request payment. A simple example of a follow up email is:

    Good afternoon ______,

    I hope you are well.

    Have you had a chance to review our invoice dated 1 February 2014?

    If all is in order, kindly make payment at your earliest convenience. 

    Have a great day!

    Kind Regards,

    Remember, at this stage, they are still your client and you want to keep it that way. You want to give them the benefit of the doubt and remind them nicely that payment is now overdue.

  4. As soon as the follow up email is sent, diarise a further follow up for about 3 days.
  5. If payment is not received within 3 days, follow up the client (the client is now slowly becoming a debtor) with a telephone call. The discussion with the client/debtor should stay professional and courteous, however you want to be clear that payment needs to be made urgently. Don’t beat around the bush.
  6. Diarise the matter for a final 3 days.
  7. If payment is not received within the next 3 days, you should now consider the client to be a debtor and you should escalate the matter.

It is important to always remember that the laws in Australia have certain protections afforded to debtors. Consequently, to avoid breaching such regulations, businesses often retain debt collectors or lawyers to assist them. Care should always be taken to follow appropriate debt collection guidelines to avoid potential actions by the debtor against your business.

Your client turns into a Debtor

There are times where debts will arise even though you have solid procedures and policies in place. When you get to this stage, your client becomes your debtor and you will need to escalate the matter to increase the chances of receiving payment.

Don’t be afraid to chase what is owed to your business. Remember, an unpaid account is commonly a breach of contract by the debtor for failing to fulfil their side of the agreement i.e. paying you!

Lack of cash flow caused by the outstanding debtors can seriously impact your business performance and therefore, should never be ignored. If you require any assistance relating to any outstanding debts, please do not hesitate to contact one of our debt recovery lawyers.

DISCLAIMER: The content of this publication does not constitute legal advice and is intended only to provide a summary and general overview  We do not guarantee that it is current.  You should seek specialist legal advice or other professional advice about your specific circumstances.    

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