There is no doubt that debt collection and creditor management is a sensitive topic. However, the reality is that unless your business relies entirely on being paid before goods or services are provided, there is a very high likelihood that at some stage you will have revenue owed in the form of debts that have to be recovered.
Even if you don’t think that’s the case, there are systems and processes that every business should have in place to ensure that customers are aware of their obligations to you as the goods or services provider and that terms and conditions are clear.
That means that it makes sense to have robust systems and processes in place to ensure that you receive funds when they are due, or that you have the best chance of recovering the debt should the need arise.
We often have credit management customers ask us how they can prevent debt collection problems in the future. Here are five simple tips to put you in the best possible position.
Clear and documented trading terms
The first tip is to have clear written trading terms in place. These need to be properly drafted for your specific needs and to recognise any peculiarities of your industry. The trading terms need to be properly executed by both the debtor and the creditor. Wherever possible you should obtain additional security such as personal guarantees or charges over assets.
Customer and client assessments
It is important to set up a process for checking potential customers before dealing with them. The processes should include a review of the currency and validity of their company information and ABN as a minimum. Some of this is available without charge. If you’re going to be granting credit in excess of a few thousand dollars, it’s worthwhile spending $50 or thereabouts making sure that the entity that you are dealing with exists and you have the correct information.
For large credit amounts, it probably makes sense to undertake business credit checks with a reliable agency. While this may cost quite a bit more, it could be well worth it in the long run.
Maintain a good record-keeping system
Record keeping is key to managing income and funds owing. Make sure your record-keeping is 100% right. It is important that your business has a system of purchase orders or a similar acknowledgment system from your customer that details exactly what you are supplying and the value of it. Delivery dockets, timesheets, or other relevant goods and service provision documents should be signed and retained until the invoice is paid in full.
Invoicing
It is essential that you get your invoices out quickly and follow them up regularly after the due date until they are paid.
Act quickly and decisively
If the invoices aren’t paid, move to recovery without delay. It never gets easier and, if done with care can hasten payment without damaging your customer relationship.