Late Payers can Kill Your Business-Here’s a Debt Collection Guide on How to Stop Them

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We see a lot of clients come to us in dire straits, wanting to improve cashflow. Some of these clients have tens of thousands of dollars owing, even after 30 days. This puts a lot of pressure on making ends meet and paying the normal monthly expenses, including payroll.

A recent report from accounting software provider Xero, says that a survey on over 150,000 Australian small businesses has shown late payment times to be a $7 billion problem, significantly slowing the growth of Australian SMEs.

The report analysed over 10 million invoices issued by Australian small businesses and extrapolated the payments patterns to apply to large Australian businesses.
Of all trade between small and large businesses from July 2017 to July 2018, an estimated 53% of invoices were paid late by big businesses.

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    On average, businesses not being paid on time found payments were 23 days overdue.
    That 53% equated to a huge $115 billion of late payments and Xero estimates if those invoices were paid on time by big businesses it would transfer an additional $7 billion of working capital to small businesses each year.

    Debt Recoveries Australia’s clients come to us when they are really hurting. If their biggest clients holds out on payment, they may not be able to pay their bills for that month, so more cash has to be found or put in by the directors. The costs can mount quickly.

    See also: Legal Debt Recovery Process in Australia

    The federal government is doing their bit, by investigating a payment times register, which is a policy designed to put payment terms on the public record. My opinion is it won’t make a difference and companies will either refuse to participate the reporting will be incorrect. Another example of public servants pretending to know what it’s like to run a small business. Don’t get me started. Here’s the government proposal:

    Statistically, the larger the company, the slower they are to pay. Businesses with more than 500 staff are 14 days late on average if they miss a payment deadline, compared with 10 days for micro businesses with fewer than five staff.
    OK so what can you do to get your customers to pay on time? Here’s some tips for you:

    1. Set strict terms. 7 days is reasonable these days, given most payments can be done online, within seconds. Check your terms of trade- ensure you have penalties in place to charge a late payment fee, and recovery fees. If you don’t have formal contracts written up for any of your clients and you don’t know where to start, check our our free terms templates here ( link to templates free download).
      Because if worst case scenario you have to take legal action, a verbal agreement and a handshake aren’t going to cut it in a court of law.
    2. Consider asking for money upfront. If you are selling a product, ask for money upfront, or at least 50%. If you provide a service, consider a subscription service fee or a retain-based model.
    3. Send reminders to your customers before their invoice is due. Most accounting softwares have built in invoice reminders, so use them.
    4. Get rid of slow paying customers. Be firm. Cut them early. It may mean an initial loss of revenue, however, it will allow you to concentrate on your good customers.
    5. Don’t deliver until you have been paid. Be firm with your customers and hold back on your work, until full payment is made.
    6. Invoice more often. If your customer is being charged any more than $10,000.00 each month, consider billing them weekly or fortnightly, instead of monthly. This way, you get your money faster.

    Key Take Away

    Late payers can greatly affect your business. Several ways can be done to do debt collection, but there are also ways to prevent late payers for your business.I hope these tips have helped you with your debt collection efforts. Let me know what tactics you use to keep your clients paying their bills on time? How do you maintain a steady cash flow for your business?

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    Adam Stewart - Debt Collection Expert
    About the Author

    In 2002, Adam Stewart established Debt Recoveries Australia Pty Ltd, a debt collection agency specialising in the insurance claims industry.

    Adam has worked in the fields of motor vehicle insurance and debt recovery for over 12 years, working with some of the largest insurance and debt recovery companies in Australia. Read more

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