How to control business debtors

While growing your business, it can become easy to lose sight of effectively managing your debtors. However, losing control of debtors can destroy a business. After many years of experience in collecting debts for clients, we have developed some useful tips.

Know your customer

Our clients sometimes ask us to collect debts without being able to specify the correct name of their customer. They may have been supplying goods or services to someone using a trading name, but they are not sure if a company is involved. Your standard customer documentation should record the correct name of your customer. If you ask them to supply their ABN, you can easily check their correct identity online.

Terms of trade

You should have terms and conditions included in your standard documents covering items such as:

• when payment is due, for example, 7 days, 14 days or 30 days from invoice;
• interest on overdue accounts;
• personal guarantees, providing that, if your customer is a company, the person signing the form personally guarantees the debt;
• retention of title – if you are supplying goods, the document should have a term that the ownership of the goods does not pass to the buyer until they pay;
• if you wish to be very aggressive, a provision that the person signing the form gives security over any house or land they may own.

We can prepare terms and conditions for your standard documentation if you wish, made-to-measure for your business.

Credit checks

The amount of useful information you can get from public records is limited. Depending on how much credit you will be giving, the best way to check the credit worthiness of a customer is to ask them to give you the names of a couple of suppliers who can vouch for them.

Credit limits

It can be useful to have a policy to record a credit limit for each customer, and hold back supply if the limit is breached. This is most useful when you have several staff providing products or services on credit.

Take strong action if required

Nobody likes to threaten to sue a customer. However, some debtors will push you to the limit, and will only pay when they are facing a real threat of being sued.

The most important rule in debt collecting is that, if you make a threat, you must carry it out. If you threaten a defaulting debtor that they must pay within 7 days, you must take action on day 8 if they don’t pay. This will give them the message that you are relentless and will put the maximum pressure on them to pay.

Cost-effective debt collection

Our online debt collecting system is far more economical and effective than using debt collectors. The system allows you to issue a letter of demand for $38.50 or commence court proceedings within 24 hours. Click here for more details.

Educate your credit control team

It is vital that all staff in the credit control team are on the same page when it comes to your business’s credit control policy and procedures. We recommend you have regular meetings to go through credit control policies and what changes need to be made, if any.

It is important to ensure that all staff understand the terms of trade. Taking some time out to ensure all staff clearly understand the terms of trade can prevent unnecessary debt chasing down the track.

Keep notes of phone calls, etc. when chasing money

If you find yourself chasing money from a debtor, it is important to keep a record of phone calls, emails, letters of demand and other documentation supporting your claim. It will also make it easier to keep track of your dispute.

Conclusion.

The key to controlling business debtors is to have clear policies, and follow them through. You should have clear steps for escalating debt collection from a simple reminder, to a letter of demand, to a solicitor’s letter of demand then court action is necessary. This lets debtors know that they must pay or else. The more carefully you follow these policies, the less likely it is that you will have to actually carry out your threats.

If you wish to try the system, please go to Online Debt Collecting

For more information contact Taylor Schrader or contact us on 9923 2321 or enquiries@somervillelegal.com.au