You have a thriving business and a diverse customer base. Your sales are on target, yet cash flow is poor. You sell on credit and you are concerned that tightening the credit you give will impact on your customer relationships. The ACT is one of the slowest paying regions in Australia, payment being an average of 19 days late1.
An efficient debt management system facilitates a steady income. Encourage your clients to pay on time and keep your suppliers happy.
Communication is key. Discuss payment terms with your customers upfront. This will reduce confusion once the invoice goes out. Stick to your terms to reinforce your clear and open communication. Ensure that any work performed or goods sold are invoiced properly, each and every time. Get your invoices out as soon as possible after the supply is made.
2. Good record keeping
Not only is it a legal requirement that companies 2 and businesses 3 keep financial records that accurately record and explain their financial transactions, a clear transactional record enables you to render your invoices promptly and quickly. If you are concerned about a particular debtor, keep records of their unpaid invoices, copies of any letters of demand, correspondence and their credit contract (if any – if not, get one!) together. This information will be of crucial importance to your lawyers, should you need to enforce the debt later on.
3. Chase early and often
Send reminders, statements and make phone calls. Reminding your customers that you are serious about getting your invoice paid increases your chances of getting paid on time. Remember the squeaky wheel gets the oil!
4. Payment plans and security
If you allow extended payment terms to any of your customers, get your customer to acknowledge the debt. And get the payment terms in writing. If the debtor later defaults, they will typically try to dispute the debt. Follow this rule and you will have written evidence to produce to a Court. Also consider taking security (personal guarantee, mortgage or security interest).
5. Debt recovery options
There are a plethora of debt recovery options including letters of demand, debt collecting agencies, statutory demands and legal proceedings. Be aware of what debt recovery options are available to you; understand the timeframes in which you need to take action and the cost. This will assist you make effective debt recovery decisions for your business.
1 Dun & Bradstreet, Australian Late Payments Analysis: Big Business in the Slow Lane (Trade Payments Analysis Q4, 2016)
2Section 286 of the Corporations Act 2001 (Cth).
3Section 262A of the Income Tax Assessment Act 1936 (Cth).