In Show 104 – Debt Recovery originally broadcast on Facebook Live on Wednesday 27 June 2018 we explore this interesting topic.
Download a copy of the workbook for this show here: 104 – Worksheet
Recovering debt is a big part of any business. If you let the money owed to you get too large it can be disastrous. Without paying clients you don’t have a business. Cash is king when running any business and if your cash flow is too low you risk shutting down. You need to have set-up an effective debt recovery framework early in your business. If you leave it too long you’re not going to be paid effectively. This becomes even more critical when you try to sell your business. If you don’t have a strong cash flow it will significantly reduce the price you can get for your business. We always recommend that you get paid up-front. But that isn’t always possible. That’s when debt collection becomes absolutely critical.
Every so often you will have a client that is a slow payer. They may not have the cash or there may be a dispute. A good invoicing process will significantly reduce the headaches involved in getting paid. You need to have good details about your clients before you offer them credit. Having one person to handle invoices separate from the account is best. The person will follow the process and not give them too much leeway.
Whenever you’re providing goods or services ahead of time you have to create an internal debt collections process. You should have a specific staff member tasked with carrying out the debt collection process. If you follow a regimented process delinquencies are going to decrease. That process should include the following steps:
- Send an invoice with the expected date of payment (usually 7 days)
- Then in the event of non-payment send a second email requesting payment
- If payment still has not been paid a phone call requesting payment should be made
As part of your team you should have someone tasked with dealing with unpaid invoices. That person should have some experience in the debt collection industry. You may want to consider outsourcing that work. They will likely be more effective and that is going to save you a lot of time in the long run. You should clearly describe your debt collection process in all the contracts you sign with your clients.
There is a clear set of debt collection guidelines that have been created by the government. The guidelines are quite broad. You may want to consider seeking the advice of a lawyer before crafting your policy. There are rules around contacting a debtor. You have to have a reasonable belief that the method you are using to contact the debtor is the correct one. It is illegal to make contact with a debtor under false pretenses. You can’t pretend your someone else. You have to be who you say you are. You also have to make contact at reasonable intervals. You can’t call them 15 times a day. These rules are in place to protect people from over-zealous debt collectors. The rules around debt collection are incredibly important. You don’t want to fall afoul of the ACCC.
Remember, getting your debt collection process in place early on is hugely important for the future success of your business!
More about this Show
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. There’s a startling statistic the underscores the importance of developing a solid plan. The majority of business owners are just seven months away from losing everything. A single aspect of your business that is not set-up correctly can shut down your whole operation very quickly. Legal advice is not cheap and even when you can afford it there is often a divide between lawyers and their clients. We want to close that gap once and for all. We want to put legal knowledge and tools into your hand to prevent the worst from happening to you.
Twice a week we are going to deliver those tools right to your home or office with Business Legal Lifecycle TV. We’ll start the week with Fast Fix Monday, a short 5-10 minute video that will tackle a single issue that businesses have to deal with. Then on Wednesday’s our main show will feature with more fulsome discussions and interviews all delivered in a straightforward and easy to understand format.