In business, it’s not uncommon for a customer or client to fail to pay their invoice. Outstanding invoices can have a disastrous effect on your business if left unchecked. The impact on your cash flow may, in turn, impact your ability to pay your debts and invoices. However, no business owner wants to spend their money to recover a debt. So what can you do?
1. Call Your Debtor
Leave a message if they are unavailable. Call them again the following day if necessary. You are much more likely to illicit a response from speaking directly with your debtor. You can repeat this process every couple of days if necessary. Sometimes a debtor will pay, just to get you to stop pestering them.
2. Email or Write to Your Debtor
Confirm the amount that is outstanding and when payment was due. Resending a copy of your invoice to your customer can limit excuses like ‘it must have been lost in the mail’.
Continue reading this article below the form3. Remain Calm When Communicating With Your Debtor
You can be forceful without being aggressive – your debtor is unlikely to receive this approach positively. Keep the lines of communication open. Remember that your primary goal is to get them to pay you!
4. Offer Payment Options
It is possible that the only reason your customer has failed to pay you is due to their individual cash flow problems. Allowing your customer to enter into a payment plan and repaying the debt over a period is better than no payment at all.
5. Document any Payment Plan in Writing
Be sure to clearly set out the amount and when each payment is due. For example, a debt of $2,000 could be paid in $200 fortnightly payments over a period of 10 weeks. Another payment option may be to allow your customer to pay 50% of the debt upfront and the remaining 50% in 2 months’ time. Amounts and timeframes will vary depending on the amount of money owed to you and your particular business.
6. Compromise the Debt
Why has your customer failed to pay you? A customer is likely to withhold payment in circumstances where they believe that they have not received the goods or services that they anticipated. If this is the case, compromising the debt by giving them a discount may be the best option. Receiving 75% of your debt may be a better outcome than a customer taking any action against you for failing to fulfil your obligations. An appropriate discount will depend and vary according to your individual circumstance.
7. Cut Your Losses
Unfortunately, sometimes your best option will be to simply walk away. If your customer has no ability to pay its debt, there is little point expending your time and energy in pursuing payment. As the old proverb goes, ‘you can’t get blood from a stone’.
8. Lawyer Consultation
Having an initial consultation with a lawyer can be a lot cheaper than you might think. A lawyer can draft a formal letter of demand to your debtor (or assist you in writing one yourself). A letter of demand is the first step in formal debt recovery proceedings and is often persuading enough to get your debtor to cough up the cash. A lawyer can also advise you on formal debt recovery proceedings and whether this option is worth pursuing.
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If you wish to consult with a lawyer about your debt recovery options or get assistance with drafting a letter of demand to your customer, let our disputes team know on 1300 544 755.
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