How to deal with Debtors and Improve your Cashflow
It is important for any small business to pay attention to the amount of owed to them at any time and to have a system and a structure to deal with debtors. It is ideal to have a written policy on how to do this and if you have employees to have one member of staff accountable for collecting these monies for your company.
Having a written policy means that you follow the same process for each debt that is owed, and it is easier for you to make your staff accountable and give them a clear instructions on how you want them to do this.
We understand that it is difficult to find time to spend doing this if you are busy with other areas of your business, but if you use software such as Xero or Chaser part of the process can be automated.
Essentially what you can do is to set up a series of email reminders to remind clients to pay their invoices, each one can be tailored to increase the urgency to pay and set out the actions that will result if payment is not made.
“Essentially what you can do is to set up a series of email reminders to remind clients to pay their invoices, each one can be tailored to increase the urgency to pay and set out the actions that will result if payment is not made. ”
Call
If this does not bring the desired result you then may wish to proceed on to making a telephone call to the client. It is important on the call to be calm and to ask the client when you can expect to receive payment and if there are any issues that they need to discuss. For instance, if they are having cashflow issues themselves you may want to discuss a repayment plan with the client.
You should keep a record of the call that you have and note a date that you can follow up with the client. If they make payment, call to thank them for the payment; if they do not you will need to enquire why payment was not made. This is a process that may take several calls to collect payment, it is important to be persistent and to keep the lines of communication open and polite.
Deadlines
Ultimately you will need to set a deadline with the client for payment to be made, if this now is not met you will need to proceed with Court Action. You should start this off by sending a letter to them by recorded delivery giving them seven days to pay the amount outstanding. If this again is not made, you will need to proceed with Legal Action for the client.
This is not something that anyone should take lightly, to take a client to court is always very difficult. You should decide if you want to continue to do business with them at this point or if the relationship as deteriorated to the extent that you do not wish it to continue.
It is important to remember that clients that don’t pay are a drain on your business, costing you time and money. If your business is to thrive you need a client base that pays promptly and with no recourse to collection action. If you are to have an effective collection process you need one that has teeth, if you are just asking for payment with no action the collection action will not be successful because companies will realise that you are not enforcing payments.
If you need help, please contact us so we can guide you through setting an effective debt collection process for your company.