Get out of Debt
Anyone who has experienced working with a client or supplier that didn’t pay their bills on time knows that dealing with business debts can be a painful experience. Avoiding late payment is vital to a business’ cash flow, financial viability and overall profitability.
There are a number of safeguards you can put in place to help protect your business from being burdened with bad debts. To begin with, ensure you are clear from the start regarding the payment amount and terms for any goods or services your business provides. You should also conduct a thorough credit check on clients, or have them provide credit references, before agreeing to work with them. This is easier when your business is established, but even new businesses will be better off in the long run turning down the offer of work from a company or individual who won’t be able to pay their bill.
To encourage clients to pay your business on time consider offering incentives. For example you could give clients who pay their invoices within a 30 day period a discount, or offer more flexible terms to long-term clients who have proven their credit worthiness. On the flip side, you could also impose interest on overdue payments if your client hasn’t applied for a credit extension before the due date. If you are going to incentivise your payment terms, however, you must remain firm and fair at all times. Otherwise you could be taken advantage of, or lose clients who believe you aren’t treating them equally.
Even with financial safeguards in place there will still be times when you find yourself having to deal with business debts. Once your invoice is overdue follow up the business that owes you the money. Call a couple of days after the payment time frame has lapsed – don’t leave the debt to go uncollected for months. Simply let them know the invoice is overdue and confirm payment will be made within the next week. It can be difficult and awkward to chase payment, but being polite and persistent will keep you top of mind with your client and ensure your cash flow is under control, without harming your business relationships.
If you’ve followed up and still not been paid there are a number of approaches you can take to dealing with your business debts. Before taking any extreme action try to find out why your customer hasn’t paid yet. It could be that they have an issue with the product or service they received from your company. Usually if this is the case an amicable solution can be reached and payment will be made. Alternatively they may be experiencing a cash flow problem, in which case you can work out a payment plan that suits both parties.
Once all other avenues have been explored you may have to take legal action. Let your customer know you are about to employ the assistance of a lawyer or debt collector, or have your lawyer send one on your behalf. Often this is enough to prompt your client to pay. If not, consider the costs of prolonged legal action and decide if the case is worth pursuing. If the debt is minor, this might be the time to cut your losses. However if the debt is significant, a good lawyer or debt collector can help you resolve the case.
If you need advice on dealing with business debts, the team of lawyers and accountants at The Quinn Group can help. To get in contact you can call us on 02 9223 9166 or fill out an online enquiry form.
Hello, I’m a tax client of Quinn Group and responding to the latest newsletter where you discuss bad debts in business.
You might also want to suggest to your readers and “B2B” business clients that they consider taking out a credit insurance policy, this protects them in the instance of a bad debt (will be insured, subject to policy’s restrictions & requirements) and equally importantly serves as ‘outsourced’ credit management, i.e. prevention/lessening of future loss.
I work for the Australian office of a major global credit insurer, we have literally tens of thousands of business debtors on our database in Australia, NZ and the Pacific Islands and millions worldwide. We will often be more familiar with a debtor than the supplier is (often we’ll have numerous policyholders running cover) and will be more objective in our risk assessment.
Please email me if you’d like any more information about credit insurance and also my company.
At this stage I’m writing on more of a personal basis and not yet formally representing my company – another representative might contact you should things proceed any further, e.g. should you have a business client that would like a quote.
Regards,
Paul Ridgewell.