Are you a business owner constantly chasing money from your customers for outstanding tax invoices? The long-term effects of chasing bad debts can lead to reduced cash flow, an inability for your business to pay its debts as and when they fall due, significant debt recovery costs and the possibility that you may lose your business. To help avoid these issues, here are our top tips to assist you in getting paid on time and in improving your debt recovery process.
1. Have Sales Terms and Conditions in place
Sales terms and conditions are imperative if you want to ensure that you receive payment on time by your customers. Your sales terms and conditions should include clear terms regarding your prices and payment terms, credit limits (if applicable), methods for payment, dispute resolution and the recovery of your costs in the event debt recovery action is commenced against the customer for unpaid debts. You may also wish to include a personal property security registration clause within your sales terms and conditions to assist in securing any potential debt.
2. Know Your Customers and Clients
In this day and age, it is crucial to know who your customers are particularly if your business is selling high-value goods or services. For corporate clients, we recommend completing a company search to ensure:
- that the company is registered;
- that you have the correct company name and ACN; and
- that the names you have for the directors are true and correct (this is particularly important if you are also obtaining a director’s guarantee).
For individual customers, we recommend obtaining a true photocopy of the individual’s driver’s licence (front and back) to ensure that:
- the photograph matches the individual;
- you have the correct date of birth for the customer to assist in verifying his or her identity and lodging any Personal Property Security Registrations if required;
- to ensure the customer’s address matches the address on the front or back of their licence; and
- to double check the customer’s signature.
You may also wish to undertake a National Personal Insolvency Index (also known as an NPII) search on the individual before offering any credit terms to ensure the customer is not a bankrupt as well as White Pages/Yellow Pages searches.
3. Provide Discounts/Incentives if a Customer Pays On Time
A discount, as small as it might be, or another form of incentive (i.e. bonus merchandise) may be a real enticement for a customer to pay your invoice on time. It may also help create a stronger long-term commercial relationship!
4. Create a Process for Invoicing and Following Up Unpaid Invoices to Speed Up Debt Recovery
We recommend implementing a documented and systematised process for issuing your invoices and following up unpaid invoices. This work may be done by either an individual or a team but having such a process in place will enable anyone involved in the business to know the status of a matter and the communications between your business and the customer.
5. Call Your Customer When an Invoice is Due
Often your customers may also be busy people and may not quickly respond to letters or emails. To help maintain your commercial relationship, we recommend speaking to your customer over the telephone or in person if an invoice is due. It may be the case that your customer requires some additional time to pay the invoice or may have simply forgotten to arrange the payment (which can happen particularly with smaller businesses). By putting a face/voice to a name, it becomes more personal and this may lead to a quick and positive result! If your customer does require additional time to pay an invoice, ensure you make a written record of it and ask the customer also to put the request and the reasons for the delay in writing. This will also be useful if the matter ends up in court.
6. Give Payment Options if Possible
While it may not be in your sales terms and conditions, you may wish to offer your customer a flexible payment plan if you wish to retain your customer. This is because legal action can be a costly and time-consuming process and should be seen as a last resort. You never know, if you offer this flexibility to a customer, it may create a stronger lasting relationship for many years to come!
7. Last Resort – Legal Action
If a customer isn’t communicating with you, or makes promises they never keep and the debt remains outstanding, we recommend issuing a letter of demand and subsequently commencing legal action in the appropriate court. While this may be a costly and time-consuming process, particularly if it is defended by the debtor, it may be your only remaining option to recover the debt.
LegalVision can assist you in getting your debt recovery processes in order and advising and commencing legal proceedings to recover your debt. If you want a fixed-fee quote, get in touch with us on 1300 544 755.
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