(This article is for commercial debts)
People often misunderstand that debt collection starts when debts are overdue, this is not right, and this mindset could potentially bring your receivable to a worse situation. So here we list a few tips that business should know about debt collection.
1. Prepare to collect before trading starts.
We believe majority of customers start trading with genuine business relationship, and have the ability to pay debts in time, however things may change with time goes on. Three situations we saw quite often with our clients:
a) Debtor’s business turns down in uncertainty time (eg due to COVID-19). These customers (debtors) maybe large and good payers in the past, however started default since 2020.
b) New customers (debtors) on board due to their credit accounts were suspended by previous supplier, these customers might only after a temporary new supplier to save cash flow and never pay the bills (or only paid very few times).
c) Customers (debtors) registered false information with ASIC, which means they prepared to default before trading.
Many business owners do not aware what is happening until they are revealed by our investigations. As a debt collection agency, we saw many business owners cannot believe that their customer prepared to default before trading starts. Therefore, it is important for businesses to prepare to recover debts prior to trading start, which aim at avoiding potential bad debts. There are many ways to do so and quite useful:
· Let you customer sign a trade agreement and/or credit application form.
· Verify customer information, based on what your customer has provided, including a reference check.
· Do a background check for your new customers, this can be done via online searching, purchase investigation reports et.al.
· Set a credit limit and term for your customers, based on your analytics of the information above, and prior experiences, then decide whether to offer credit account to a specific customer or adhere to payment up front.
2. Internal collection during trading.
A few internal actions can be very useful during trading:
· Reminders (we recommend within 30 days overdue), send reminders in writing to customers that are overdue, ideally the first reminder should be sent out within the first week of due date, and it can be sent on a weekly or fortnightly basis thereafter. We know there are many accounting software have the function of automatic reminders, however manual reminders always outperform system automatic ones based on our experience.
· Stop credit, when your customers are in serious arrears, for example 30 days overdue, it is important to stop sale until they catch up the payments.
· Final notice (we recommend on or about 30 days overdue), a final notice can be powerful if your customer does not pay after a few reminders. Sets out what are the consequences of non-payment, it will send a clear signal to the customer that you are taking it serous, you will take further actions if they don’t pay (within a specific term).
3. Debt collections.
It’s time to send the case to debt collectors after you tried to collect internally but did not get fully paid, and the debt reached approximately 60 days overdue. Winning rate can be 95% plus if you have done the above-mentioned preparations in Step 1 correctly, based on our internal data, whereas wining rate can be as low as 55% if you didn’t prepare anything.
With Xservices, we will discuss each debt with you in detail prior to collections, and spend extra time in investigation/study the debt, to ensure a higher success rate. We are professional debt collection agency specialise in commercial debt recovery, and are proud of we have helped many small business owners chased back their money and supported their businesses during uncertainty time. Our services cover Melbourne/VIC, Sydney/NSW, Brisbane/Gold Cost/QLD and Perth/WA. Get in touch now if your client not paying invoices on time.