Steps to suggest
Always promptly follow up on overdue accounts, for new and regular clients. The simplest method is to inform clients of a ‘new account processing method’. Follow-up steps can be introduced without being too offensive. The ideal follow up is a call or email from an accounts person.
Where continuing ignoring of follow-ups occurs, this should lead the business owner to sense a problem, and they should personally contact the customer asking when payment will be received.
While this may be an awkward phone call to make, avoidance will compound the problem and effective managers will develop a technique that suits their business style. Regular contact with the customer and a polite reminder of the agreed terms of trade will assist to maintain the relationship, especially with long-term clients.
In cases where owners are dealing with one-off customers, quick action should always be taken.
A single reminder should be followed up by a letter from a solicitor. This reinforces the seriousness of the debt and usually results in payment. Repeat offenders may need more persuasion.
An ounce of prevention …
To prevent credit problems, every business should do the following:
- Get the name of the customer right. Is it a corporation? a registered business?
- Check websites with free and easily accessible information – ASIC, ABN Lookup, and Department of Fair Trading. Do the name, ABN and suburb match?
- Check details are properly included on the invoice.
- Have clear terms of trade and state them on invoices – or refer to where they may be located.
- Insert a ‘Retention of Title’ clause on invoices.
- Follow up as soon as an account is overdue with a friendly ‘just checking’ call.
- Don’t continue to supply goods/services to a customer that does not pay.
- Implement a reminder service for slow payers – inform them they will be followed up two days before payment is due to confirm expected date of payment.
- Consider offering discounts to customers who agree to pay by direct debit – receiving regular full payment should balance out any discount offered.
- Update your account payment process. Is it easy for your customers to pay their accounts through various technologies available?
- Review the benefit of dealing with difficult customers. Are efforts better spent on your compliant customers?
- Do not underestimate the importance of proper payment processes: get organised; get documentation accurate and correct; follow up any problems early and enlist expert legal help for any hard to recover debt.
Rewards for the diligent
There are many challenges and risks in business, especially for smaller operators. However, intelligently executed credit policies will help business owners reap the rewards of their hard work rather than watching their success leak away in the form of uncollectable accounts and delinquent debtors.
