Relationships With Your Debtors - Practical Tips To Avoid Bad Debts
In this week's blog we share some practical tips to help you to avoid bad debts.
- Assess creditworthiness and where relevant set appropriate limits on the credit you'll provide them. Ask new customers for trade references or get an online credit check done. Don’t extend credit new customers until they have a track record with you.
- Have a well crafted set of terms and conditions and have your customers accept them (digitally or physically) BEFORE providing any goods or services to them
- Ensure you use practical & effective recovery tools in your T&Cs like the ability to charge interest, charge an administration fee (reasonable) for late payment or report them to a credit rating authority for a payment default. These can be just the persuasion a tardy debtor may need to pay before you have to 'go legal'.
- Check where, to whom and how you should send your invoices; you may need to include a specific Purchase Order number or other information/details specific to the customer's accounting system before it can be processed and paid by their accounts department.
- Send your invoices promptly and start chasing payments as soon as they become due. Actively chasing overdue debts is a vital part of minimising bad debts.
- Find out if your customer has a regular payment system (e.g. a monthly debtor run). Consider adjusting your system to fit in with this: for example, following up as soon as you realise your payment has been missed out – or calling in advance to ensure that payment will be made.
- Phone your contact when an invoice becomes overdue (e.g. the individual who placed the order) and ask them to help, as routine/automated letters & emails tend to be ignored. A diplomatic approach generally works best, particularly when you want to have a continuing relationship with the customer.
- Resolve any disputes quickly, transparently and genuinely. You are unlikely to be paid until the customer's grievances have been properly aired and addressed to their satisfaction ( this doesn’t necessarily mean a discount, reduction or write off of the invoice!).
- Reconsider the terms on which you do business with customers that regularly pay late: for example, increasing the prices you charge, taking a deposit, only allowing them to pay by automated Direct Debit or even requiring them to pay in full up front (where possible).
- Formulate a strategy in case your debtor continues to delay payment. Before making a formal legal claim against them consider charging interest, reporting a payment default to a credit rating agency, withdrawing the provision of further goods/services until paid in full or exercising your retention of title rights. All of these options need to be made possible by your T&Cs. Alternatively; you could negotiate part-payments or learn about invoice funding options available to your customers. These can often help to resolve disputes without the expense of going to court.
- If all else fails get us to review your client engagement processes, documents and systems. While we can help pursue formal legal claims for specific debts we can also often help identify weaknesses in your systems, procedures and engagement documents that are exposing you to bad debts unnecessarily in a very cost effective and efficient manner
We specialise in providing clarity and confidence to business operators in their legal relationships with their customers and clients. If you are having problems with debtors or if you think your business contracts, client engagement documents and processes need reviewing – or if you don't have any – contact us, your debt recovery lawyers sydney, to discuss the legal needs of your business.Back