Chances are that if you’re a business operating within Australia in the past 12 months you’ve experienced issues such as outstanding client debt or overdue accounts. In fact in a recent survey they went so far as to say that 80% of small business owners have experienced cash flow problems. It’s likely that this type of debt has caused stress, anxiety and may have ultimately had a significant impact on your business operations.
If you’re dealing with unpaid debt you’ve most likely thought about debt collectors and whether hiring one for your business is the right decision. Debt collectors can often be viewed negatively due to reputations gained through television and media but in reality they can greatly increase the chance or recovering your outstanding debt while maintaining a professional relationship and upholding the reputation of your business.
Improves Business Cashflow
Cash flow is basically the net change in your businesses cash position from one period to the next. Your aim as a business is always be to bring in more cash than you send out in order to have a positive cash flow. By having a positive cash flow your business has the opportunity to invest, expand and grow while maintaining your business expenditures such as salaries and operating costs.
Having a positive cash flow is a key indicator of business health.
If on the other hand, due to outstanding debt, you have a negative cash flow it means that money is leaving your accounts faster than it’s coming in and this can be a very stressful time in your business. Debt collection agencies have trained and experienced professionals that can help your business recovery debt quickly and improve cash flow.
Prevention of bad debt is a key recommendation for all clients and not only can collection agencies collect money on your behalf they can also assist your business with recovering bad debt more quickly by assisting you with areas such as the following:
- Background credit checks – Make educated and informed decisions on the type of clients you with
- Terms of trade – The terms and conditions of trade clarify responsibilities and expectations in order to conduct business together.
- Credit insurance – Insurance can help protect you against solvency, bankruptcy, liquidation, administration and non-payments
Increase the chances of recovery
Debt collectors are highly experienced in the process of collection including the laws involved with business debt recovery. Research clearly shows that the probability of recovering and collecting of your debt greatly decreases given the length it’s been outstanding. A recent survey confirmed this by highlighting the chance of recovery given a length of time:
- 2 months – 81% chance of recovery
- 6 months – 52% chance of recovery
- 12 months – 25% chance or recovery or less.
Should your business require debt to be recovered it’s critical that you use a proven process. Professional collection agencies will have an approved and repeatable process in place to ensure they can accommodate as many collection scenarios as possible. In particular your debt agency may provide you with a clear action path such as the following:
- Send debt collection letters
- Phone call demand and conduct a search of the business
- Issue a complaint
- Service of complaint
- Make arrangements or receive payment
- Judgement given in the legal system.
If debt is outstanding for more than 60 days it’s recommended you seek additional support.
Legal Assistance
A debt collector’s aim is always to avoid legal action and follow each prior step in their action path before legal action is required. In some cases however, when all alternatives paths have been exhausted, a collection agency can issue legal proceedings on your behalf. Collection agencies are well versed in the laws surrounding the collection of your debt and in most cases will have an in house solicitor or recommendations for gaining legal advice.
The cost and time involved with finding and hiring your own lawyer can be expensive.
Reduces time & costs
You know that old saying, time equals money. When it comes to recovering debt this couldn’t be more true and not only do businesses need to address the outstanding debt but also their time required to follow up with customers via email, telephone or face to face.
Each time you make contact it’s recommend that clear expectations are set and agreed in regards to payment of the outstanding amount. As well as that it’s recommended that details of the meeting are documented, summarised and the client signs off to ensure they have understand their expectations. Each time you or your staff is required to do this means that you’re paying wages for the recovery of bad debt which therefore dilutes your income. If this goes on for long enough it may mean that your profits are completely diluted into unrecoverable debts.
Hiring a collection agency ensures that you’ll spend less of your time and have a great chance or recovery the outstanding amount.
I didn’t realize that your chances of recovering the money you were owed dropped to less than 25% after a year of it being owed to you! I can see how hiring someone to aggressively pursue the retrieval of your money would be a good way to raise the probability of getting paid. I am sure it would be important to figure out how the debt collection company works though, to make sure that they are not going to end up costing you more than you stand to gain.