Hi, my name is Adam Stewart, Debt Collection Expert and owner of ADC Legal Litigation Lawyers.
As a Credit Manager or Financial Controller in charge of accounts receivable, you just want to get paid as soon as possible right? Without any dramas.
From an outsider’s perspective, the idea of getting someone to pay an invoice on, or before, the due date sounds like a pretty basic thing – but for those of us working behind the scenes, we know just how complicated it can actually be.
As I’ve said before, prevention of bad debt in the first place is the best outcome, so you can then save time having to chase bad debt and administer that process. So here are my 6 tips to help your debt collector or even avoid bad debt in the first place:
1. Be prepared
There are many ways to try and settle those accounts more quickly. But it can be helpful to take a critical look at the credit control system you have to make sure it’s still working. Get the basics right in the first place and this will reduce bad debt and having to outsource to a debt collector in the first place.
Develop a credit application form and have it reviewed by your lawyer. If you want a free credit application template, click here: http://www.debtrecoveries.com.au/credit-control-free-template-pack/
Clearly state your terms and conditions of trade in writing. They should reflect the need of your business. Seek legal advice to ensure it covers all key issues. Your terms and conditions are often relied on in the event that court action is necessary to recover a debt.
Include your terms and conditions with all quotes, contracts, agreements and invoices. This seems simple but so many of our clients do not do this simple credit management step. Clearly specify what will be supplied, when the work will be done and when and how payment will be made.
2. Don’t offer credit
I know what you are thinking. Crazy right? But have you thought about alternatives to offering your customers credit? Yes, you may lose some customers, but ask yourself if these are the customers you really want.
Customers who take a year to pay and take up all your time and energy. Some alternatives to credit include:
- COD ( cash on delivery)- try it for new clients, until they establish a credit history
- Take a deposit- ask for 70% deposit up front
- Ask for progress payments, made in advance
- Offer a subscription- ask for a monthly payment upfront, for your product or services. Easy.
OK so you’re not the adventurous type. Want to offer credit? Then invoice promptly and have a plan to follow it up. This is where you have to be pro-active and think like a debt collector. Consistent and persistent contact in a friendly manner is the debt collector’s secret to getting paid.
Some tips for invoicing:
- Cut off supply until you get paid. Simple.
- Understand the customer’s payment process and procedures.
- Call the customer a few days before payment is due to confirm that they have received the invoice and that there is no reason for non-payment
- Have systems in place for issuing statements, sending reminder letters and calling customers
- Keep records of all communications. This is important if you do have to refer to a debt collector.
- Try not to leave voice mail messages. It is better to call back and speak to the person concerned.
- Follow up promptly on promises to pay
Remember to be consistent and persistent. Contact your client the day after the account is due to be paid. This lets them know that you keep track of your accounts receivable. Sometimes invoices get lost or overlooked, so maintain a positive relationship with your client.
Whatever goals you determine are the priority, those need to be communicated with everyone involved – such as management, the rest of the credit management function, the sales team and finance – and everyone should be in agreement.
5. Debt collection agency
A debt collection agency recovers payment on your behalf. Demand for payment can be made in writing, verbally over the phone or in person. Debt collection agencies charge a fee or a percentage of the amount collected or both, depending on the circumstances.
6. Legal Proceedings
You may choose to take legal action. Be prepared to follow through with any warning about legal action in your letters of demand. Some legal proceedings may become complex and expensive, so ensure you consider carefully before making the threat or commencing action.
Here are some more credit management tips from my previous article: https://adclegal.com.au/credit-management-tips-to-increase-cash-flow-and-help-with-debt-collection/
ADC Legal Litigation Lawyers is a legal practice specialising in commercial advice and litigation, debt recovery and insurance claims recovery disputes. For more information, email us at firstname.lastname@example.org or call 1300 799 820. Talk to us about your litigation or dispute concerns via Skype at adclegal.