Hi, my name is Adam Stewart, Debt Collection Expert and owner of ADC Legal Litigation Lawyers.
Cash is King as they say, so the two most important elements of maintaining good cash flow are credit control and debt collection.
Here are some tips on preventative action you can take for better credit control and hopefully avoid debt collection altogether. It can be used as a starting point that your organisation can use to develop a framework for preventing bad debts in the first place.
Choose your clients carefully.
Build long-term relationships. Payment in advance or at the time of goods or services are delivered is ideal and the best form of preventative action. However, this option is not always available for a variety of reasons including:
• Your client would use your competitor if this was enforced
• Your client might not have the cash flows to immediately pay you (this can be relevant to the construction industry with their payment upon milestones common or the rural / farming industry where income is based on seasonal crop harvesting
Consumers are much more accustomed to paying in advance in today’s environment compared to 10 years ago. E-commerce sites (such as wotif.com.au, ebay.com.au) has been exceptionally good at changing consumers’ behaviours. We now see tradespeople such as plumbers and electricians carrying mobile EFTPOS machines and taking payment upon providing services.
Where you can, take advantage of this change in consumer behaviours and do not offer credit where you do not have.
Have the right processes in place before you offer credit.
Look at what the experts do before they offer you credit, such as banks etc. Apply the context of your business to a credit application form and the amount of information you will require. This will depend on the amount of risk you have attached to any one particular client. Contact me for some free credit application templates if you need them.
At a minimum, ensure you have a credit application form and always seek director’s guarantees. These are “gold” if it does actually get to the collection stage.
Undertake due diligence.
Once you have received a completed credit application form, do the following:
• An ABN search
• A company search
• Credit Reporting Authority search (such as Veda or Dun & Bradstreet)
• A property search on any person providing a guarantee
• Review the credit applications ability to repay the debt (you might want to consider this for large debts and seek financial information such as tax returns, assets and liabilities including bank statements)
The amount of searches and information checked will depend the amount of risk you are prepared to accept.
Use the Personal Property Security Register (PPSR) where possible.
If you are supplying goods of significant value, use the Personal Property Security Register (PPSR). Where you have “perfected” your security and you do not receive payment, you have a right to recover your goods. This puts you in a much more secure position compared to an unsecured creditor in the event of insolvency.
Do you have a credit control system? Have processes and procedures in place for credit control and debt collection.
Based on the different profiles of your clients, set up your credit control and debt collection processes for each of these profiles:
• Have approved letter, fax, email and SMS templates in place
• Have phone scripts available if appropriate
• Have time frames for specific actions to take place in the collection cycle
• Ensure you have a designated resource in place to perform the credit control and debt collection function
• Regularly review your aged receivables and refine your processes
Ensuring all these processes are in place will give you a great kick-start to ensure strong, regular cash flow and perhaps you will not even need debt collection services. What will I do all day?!
I hope these tips have been useful to you. If after all this, you still have some bad debts that need collecting, contact me at www.adclegal.com.au or call 1300 799 820.