Particularly in the current economy, cash is king. It’s critical, in order to stay afloat, that you have tight reins on your cash. Many businesses are watching their outgoings and working hard on their sales. It should definitely not stop there. Just because you had sales of $50K this month doesn’t mean you are financial. If no one pays you, then that $50K worth of sales this month means zilch !! In a recent CPA survey, it was found that 25% of small businesses never chase up late payments.
So, here are some very practical tips on how to chase your unpaid accounts (aka ‘receivables’ or ‘debtors’):
1. It’s important to invoice regularly and to have an Agreement in place in respect of payment terms, interest charges or late fees.
You must have this clearly in writing before the fact. I suggest you draft a Client Agreement up and then have your solicitor check it over.
2. Do this weekly.
It’s a statistical fact that the longer you let a debt go, the less likelihood it will be paid. If you chase weekly, this allows you to follow-up on breached promises. It always sends a clear message to your debtors that your business is ‘on the ball’, essentially educating your clients/customers that late payment won’t be overlooked or ignored; they do learn and improve with time.
3. Have a person who is ringing is professional, friendly but firm.
Ideally this person shouldn’t be your main salesman. Don’t hire a ‘pit bull’ for the job; you don’t want them to be that harsh you lose business, but also don’t go the other extreme and have someone who is too soft.
4. Have a set routine and document everything.
When you ring on Monday morning and Mr. Smith promises to pay invoice #123 by the 15th, write this down. Not just on a piece of paper, somewhere you (and everyone else) can refer back to. If you use MYOB accounting software, then the Contact Log is perfect. Simply log the date and time of the call, who you spoke to, what they promised and initial the entry.
5. Follow-up the week later.
And if it’s after the 15th – you can then use the above log entry and speak to Mr. Smith. Politely, but firmly, remind him that when you spoke last Monday, he promised to pay by the 15th … by quoting dates/times etc, he knows you’re recording everything and encourages him to fulfil a promise. This is also a record, so that if it does move to legal action, you have a record of all the promises.
6. Be flexible.
You may have a client who has run up a $3K bill but then has had a mini crisis and as much as they want to pay the bill, just can’t at the moment. You do have to sort out those who are just spinning you a tale from the genuine. Consider offering a repayment plan. Personally, I would prefer to get $50 a month for two years than take legal action, send them bankrupt and get nothing. And if you’ve been sensible (as in tip # 1 above) and you have the facility to charge interest on monthly balance so you won’t become a free bank. Using the ATO general interest charge (GIC) rate is often a good rate to use.
7. Have in your policy what the next step is.
If they still don’t pay, send a fairly firm letter stating that unfortunately it’s now come to this and although you’ve made numerous attempts at collecting the money, it remains outstanding, so if not paid in 7 days will be passed onto your collection agency or solicitors. Even send Registered post. At this time they may likely be liable for the legal fees as well. Mention the name of the firm you use.
8. If they still don’t pay, then do it.
If you make the threat, you must follow through on it. Sure, if they come back to you and negotiate a slight extension (for a good reason), but otherwise, just go the next step. They may have thought you were kidding, but a firm letter on solicitor’s letterhead often gets results.
9. Don’t be bullied.
Some clients may take offence to you asking to be paid. How dare you provide a quality service or product and actually expect to be paid? Over the years, I have on occasion lost a client due to my asking (politely) to be paid. Think about it, unless you are a charity, do you really want to work very hard and not be paid? Do you want this client? As long as the collection process is professional, polite, but firm, you have done nothing wrong. If however, you are quite happy to work for nothing and lose your cash flow, and possibly, ultimately your business, then by all means – do not debt collect. You won’t offend anyone, but you probably won’t still be in business in 5 years’ time.
There is more to learn in doing your business. I can assist you and guide you to make your business a success.