How to handle debt so you always get paid on time

< back to all business news articles

06/12/2017

One of the most important rules for a successful business is to swiftly collect money that’s owed to you – it should be coming in faster than you have to pay it out. This means being able to deal effectively with customers who owe you money, because the last thing you want is a protracted debt collection process that could wind up in court. It’s time consuming, expensive and stressful.

Establishing efficient systems means that not only will you get paid faster, but you’ll also reduce the risk of late or non-payers. The more robust your payment and credit systems are, the less your chances of having to chase up debtors. At the end of the day, prevention’s infinitely better than a cure, so keep the following in mind:

• Offer immediate payment options – people like paying on the spot, especially for a job well done. If your business offers a service that customers can pay for immediately, using a mobile payment option, then not only do you have the money faster, but you don’t have to waste time sending out and chasing up invoices. Make it easier for your customers to pay you.
• Don’t let it fester – if you do have to send out invoices, don’t delay in chasing them up. The longer you leave it, the harder it’ll be. If you have a good accounting system, you can set up a flag system so you know who owes money and when.
• Run credit checks – if you’re going to offer credit terms to your customers, check them out first. That way you’re making an informed decision about the risk you’re taking. You can do this at Equifax or Experian. If you do decide to offer them credit, make sure you have a credit agreement in place where you’re both clear on the repayment terms.

Tell-tale signs of a risky customer

You might be tempted to offer the same credit terms to everyone, but it’s better to be more selective when you’re deciding who to accept. In particular, be wary of:

• Large orders – it’s not usually a good idea to offer this to a new customer. You’ll expend time, money and resources fulfilling it, which will all go to waste if you wind up not getting paid. If you do decide to accept the order, ask for a deposit or progress payments, and make sure you’ve checked their credit rating.
• Try not to rely on one customer – it’s safer to have a number of smaller customers than one large one. Customer diversification is important to small businesses.
• Don’t be a target – customers who’ve been blacklisted by other businesses may target you as their next unpaid victim. Again, credit checking is essential.

Collecting debt

If your business uses invoicing payment options and you do extend credit, you’ll probably have to chase up customers at some point, despite your best efforts.

Before you begin debt collection procedures, make sure the debt’s valid. It’s important to confirm that you’ve supplied the correct products and services, in the right amounts, for an agreed price within a certain time frame. Once you’re sure of that, it’s time to chase up what you’re owed.

Make it personal

If you can put a human face on the debt, reminding your customers that what they owe is affecting you personally, they’ll probably pay up faster. Try:

• Phone calls – speaking to your customer directly is a good way to personalise the issue, and if there are any misunderstandings, you can clear them up. Sending emails – instead of a past due notice – that emphasise the trust you placed in them is also a good way to make a personal connection.
• Offer a payment plan – if your customer is in genuine trouble, offer to let them pay in installments. Make sure you draw up an agreement outlining the payment plan.
• Talk it through – explain to them that the money they owe you is important for your business, and that as you don’t have stacks of spare cash lying around, you need it for your operations.

If you can, try to be flexible when it comes to repayments. You could agree to accept goods for their resale value, or accept a service instead of cash.

Hire a debt collection agency

If you’re still not getting anywhere, it might be time to call in the professionals. However it’s a big step because when you get a debt collection agency on the case, you’re probably going to alienate that customer. If they’re a habitual non-payer, you might not see this as any great loss, but it’s still important to think carefully about what the impact will be on your relationship with your customer.

Going to court

This really is a last resort and should only be used when absolutely everything else has failed and the debt you’re owed justifies the cost of a legal intervention. Going to court because of a sense of outrage or a desire for revenge is never a good idea – your decision should be based on business principles and you should be confident that the facts stack up on your side. Speak to your lawyer about the process, cost and potential outcome and make your decision based on their advice.

Summary

As with anything else in business, handling debt and making sure you get paid on time is about having good systems and processes in place. The better your systems, the more likely you are to get paid on time, and the less likely you are to offer credit to customers who could turn out to be a problem.

Additional Resources

• 7 surprising tips to get your clients to pay faster
• The small business guide to invoicing and getting paid