1. Assign someone to be your ‘Debt Collections Officer’
Someone in your business should be assigned debt recovery duties. The responsibility of recovering bad debts should ultimately fall under the control of one person. This ensures the debt recovery process is streamlined and efficient, as opposed to having multiple people within your business contacting the same debtor. If your business has multiple debts with numerous bad debtors, this could even mean employing a part-time or full-time dedicated debt collections officer. Alternatively, if you do not have the resources to handle this internally, you can assign these duties externally by using a debt recovery service provider, like Turnbull Hill Lawyers.
2. Screen potential customers carefully and know who your customers are
If your customers are purchasing high-value goods or services from your business you need to identify who they are and screen them, wherever possible. This becomes crucial when initiating debt recovery proceedings against them. In B2B situations, we recommend always undertaking a company search (asic.gov.au). In B2C situations, we recommend taking down as much customer detail as possible (driver’s licence, etc.). It’s also prudent to double check any details given against publicly available databases, like the White or Yellow Pages or even social media.
3. Offer customers incentives for early or instant payment
While this might sound like a no-brainer, in reality, it’s not very common. The easiest incentive to give your customers is obviously a discounted price, however, we encourage business owners to be creative in the way they offer incentives. If you know exactly who your customers are and how they operate, to help foster a stronger long-term relationship, it’s a much better idea to create an incentive that you know that particular customer would appreciate and respond to. For example, in B2B supplier/distributor situations, the customer may prefer exclusive access to a product.
4. Don’t be shy, at least attempt to communicate verbally with the debtor
The popularity of using social media, SMS and email to communicate with customers has meant people are no longer picking up the phone. Non-verbal communication can sometimes appear rude and often gets lost in translation and/or taken out of context, which could lead to you permanently losing the customer. We recommend breaking this trend and actually making an attempt to resolve the issue by speaking directly with the debtor, to ensure both parties are on the same page. This should be the first step your business takes as soon as you become aware of a debt.
5. Have clear, transparent and accessible contracts & terms
We recommend setting specific and realistic credit limits, payment terms and methods for payment at the beginning of the contract. In addition, the contract should be clear, transparent and readily accessible to all parties involved in the transaction. New cloud-based online document management tools (like Alfresco) make this really easy and cost-effective. Finally, we recommend having a debt recovery expert involved in this process to ensure the contract and its terms reflect the needs, resources and capabilities of your business.
6. Always be professional, maintain a positive attitude and give options wherever possible
Being owed money is frustrating and, in some cases, infuriating, but that shouldn’t stop you from being professional, maintaining a positive attitude and acting civilly with the debtor at all times during the recovery process. Do not, under any circumstances, make any threats to the debtor. While you aren’t legally obliged to, we recommend offering the debtor flexible payment options, even if those options aren’t described in the contract. However, this is only recommended in situations where you actually want to retain the customer. Legal action should only ever be seen as a last resort. Bending the rules a little bit and showing some empathy for the debtor could go a long way in fostering a stronger long-term relationship.
7. Get a written ‘payback’ commitment from the debtor as soon as possible
While we do recommend picking up the phone, we also believe it’s a good idea to get a written ‘payback’ commitment from the debtor as soon as the debt becomes payable. This usually comes in the form of an email or letter whereby the debtor acknowledges the debt, explains why it hasn’t been paid on time and promises to pay it back by a specific date. A written commitment can assist you if you end up initiating debt recovery legal proceedings in Court.
8. Have a documented and systemised process of invoicing and following up late payments
As mentioned earlier in (1), you should have someone dedicated to recovering your debts. This person should be following a documented and systemised process of invoicing and following up late payments. This process should be readily available to everyone involved in your business transactions, including the debtor, so they know what to expect and how often the debt collections officer is likely to make contact.
9. Keep a record of all contact with the debtor
It is important to log all contact with the debtor, including keeping a record of any written communication sent to and from the debtor. Such a record will be required if you end up initiating debt recovery legal proceedings in Court. New cloud-based customer relationship management (CRM) tools (like SalesForce) make this really easy and cost-effective.
10. Be prepared to pull the plug if necessary
You cannot let your customers get away without paying you forever. At some point during the debt recovery process, you have to pull the plug and put an immediate stop on the customer’s account. If your customers are known to each other, like parents of a day care centre, this also sends a strong message that you will not to be taken advantage of. If the debt is significant (>$2k), this is usually when you would initiate legal proceedings in Court and contact a debt recovery service provider like Turnbull Hill Lawyers. If the debt is small (<$2k), this could mean just copping it on the chin and moving on.
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