Welcome to another Quick Tips session! In less than 10 minutes, we’ll give you six simple tips to help strengthen the debt collection process in your business.
01:11 A potential change in the government’s approach
03:27 Tip #1: Be clear about payment timing
03:48 Tip #2: Give your clients good reason to pay on time
04:26 Tip #3: Include enforcement costs in your terms and conditions
04:50 Tip #4: Use technology to make payments easy for your customers
05:07 Tip #5: Chase late payments early
06:05 Tip #6: Have a clear and defined debt collection process
07:53 Download our simple checklist
08:13 If you need help, get in touch with our lawyers at Aspect Legal
Hi, it’s Joanna Oakey here. Welcome back to Talking Law! Today we have another Quick Tips session. Our quick tips sessions are all about giving you the high level areas of information that you need to know in relation to a particular area in the shortest possible time.
Today we are talking about tips on tackling late payments in a business. So why are we talking about this area today? This area, if you are a business owner you will know, is a problematic area.
A Potential Change In The Government’s Approach
Cash is the lifeblood of the business. And often the quicker you grow, the harder it is to keep a firm and tight hold on cash flow in the business. In fact, this topic has come to the forefront of the attention of the government and recently Small Business Ombudsman Kate Carnell has announced that the government is looking into requiring the biggest spending departments within the Federal government, requiring contractors to pay their supply chain businesses within 30 days.
So of course if you are anyone who deals directly with the Federal government or is a supply chain business to a principal contractor that has contracts with the Federal government this will be good news to you. And until we have movement at that station, what levers can you pull in your business now to get some of that cash moving?
If your business deals directly with principal contractors that have a contract with the Federal government you look set to be advantaged by this potential change in the government’s approach. Now just to make it clear what we’re talking about here. The Federal government already has a practice of paying their contractors in 30 days. But the problem is that there is nothing at the moment enforcing this on-time payment down the line from the principal contractor to those suppliers into that contractor. And so this is where the new proposed approach would fit in requiring that those prime contractors pay their supply chain contractors within 30 days.
But until we have movement at that station, and indeed if you don’t have clients that are prime contractors to the government, what levers can you pull in your business right now? Here’s a few quick tips of things that you can put in place right now.
Tip Number 1 – Be Clear About Payment Timing
Be clear on your invoices and in your terms and conditions about payment timing. So check out those terms and conditions and see what you’re saying about payment timing. Make sure it’s absolutely clear and make sure on your invoices your payment terms are large and easy to read.
Tip Number 2 – Give Your Clients Good Reason To Pay On Time
Include in your terms and conditions the ability for you to charge fees for late payment. This will give your clients a good reason to pay on time but you need to have this right in your terms and conditions that form part of the contract before you have provided your goods or services in order to give you the right to charge this fee for late payment. Another way that you could spin this dice is to include a pay on time deduction. So therefore some sort of discount to the client to reward them for early payment.
Tip Number 3 – Include Enforcement Costs In Your Terms And Conditions
Include in your terms and conditions an ability to pass on enforcement costs. So if you have to go legal, of course coming to us to help you out with chasing up those debtors, then it’s great if you can require your debtor to pay any legal costs that you might incur.
Tip Number 4 – Use Technology To Make Payments Easy For Your Customers
Consider using direct debit in your business or consider using other technology driven ways of receiving automatic payments without requiring your customer to think and take action every month of service.
Tip Number 5 – Chase Late Payments Early
Chase early. Be the squeaky wheel. Look, to be frank, the older the debt the higher the likelihood that it won’t be paid or that it will be hard to recover. And if there’s issues in receiving payments sometimes these can be a warning about a customer not being happy so it’s really important to jump on these issues as quickly as possible. The longer they go on, the longer they fester, the more likelihood it will be difficult to recover money later on down the track and even harder for you to get your customer in a position where both you and they are happy at the end of the transaction. So remember late payments can be a warning of something else that’s going on. So having a really tight debt collection process internally can help you weed out these problems before they turn into large issues for the business.
Tip Number 6 – Have A Clear And Defined Debt Collection Process
And finally make sure you have a defined escalation process within your organisation so make sure it’s clear that if your debt collection process is not working and of course this means you need to have a clear and defined debt collection process within your organisation. If that process has accelerated through a number of steps within the process, so say for example you’ve sent out a number of statements automatically from your accounting software system, your accounts department have followed up with phone calls a few times and you’re still not getting anywhere – make sure there’s an automatic escalation process internally. And make sure the person that is responsible for debt collection and accounts internally is reporting to you on a regular basis. So recovery and collection is prime in the minds of the people who have responsibility of doing this and the people who are overseeing this area.
It’s really important if you identify an issue to jump on it quickly and if it’s not being resolved internally then to move to something like a letter from a lawyer to give it a bit more “umph”. And certainly if the relationship has broken down you really need to think about getting other advisers and professionals to step in and help quickly in the process.
Well that’s it for our Quick Tips episode. As the name implies, the episode is quick. Hopefully the tips that we provided today in relation to collecting your debtors and tackling late payments in a business have been helpful. Of course none of this is useful if you just listen to it and don’t implement. So my recommendation is to head over to our website at talkinglaw.com.au.
Download Our Simple Checklist
There, if you look for this episode, you’ll be able to download a transcript of this episode. And you’ll also be able to download the list, simple checklist of these quick tips that we went through today so you have something as a guide to go and create the debt collection system within your organisation.
If You Need Help, Get In Touch With Our Lawyers At Aspect Legal
And if you want to help, of course our lawyers over at Aspect Legal would be only too happy to help. So check out our show notes or go to talkinglaw.com.au to book in a free discussion with our lawyers to assess the issue within your organisation so that we can provide you with some ideas about the ways we might be able to help you implement a better debt collection system within your organisation to make sure you’re getting those late payers paying quickly and on time.
Thanks again for listening in today. You have been listening to Joanna Oakey and Talking Law.