Overdue and unpaid debts can cripple or even fatally wound an otherwise profitable business. In fact the average invoice in Australia is paid 26.4 days late, one of the worst in the world. So if you’re not managing your overdue invoices and don’t take preventative measures to protect your cashflow you may soon find yourself in very deep trouble.
I know you have a huge list of “important” tasks to manage everyday in your business, but if there’s no money coming in then nothing else will work either, so it’s time to prioritise.
Below I have listed the seven biggest mistakes made by small business owners when it comes accounts receivables
1. Not Doing Your Research
If you offer credit to customers, especially larger accounts with high credit limits, then you need to know who these people and businesses are and what their credit history is like before doing business with the. These days it is fast, easy and affordable get both a business and a personal credit report on a new or potential customer and doing so could save you thousands of dollars.
The credit report will include: (for businesses)
- ASIC current extract
- Fresh ASIC/Business Name Search
- Adverse information on all of the Partners/Directors
- Default information on all of the Partners/Directors
- Past Credit Enquiries on all Partners/Directors
- Summary of Partners/Directors business relationships
- Insolvency details
- Bankruptcy details
2. Not Collecting Enough Information
When it comes to smaller customer whom you supply goods and services to on credit it’s still important to get as much up to date information as possible. This will make it easier for you to track them down if the invoice becomes overdue.
Always ask for…
- Full name
- Email address
- Multiple phone numbers
- If a business then also get business license information
This information should be updated at least once a year to ensure it is up to date
3. Not Managing Receivables Properly
As mentioned earlier ensuring you manage your receivable properly is crucial to your business’s survival. If you don’t have the time to do it yourself then you need to hire someone who recover unpaid invoices effectively and affordably on an ongoing basis.
4. Not Having A Written Contract Or Paper Trail
Sometimes you may feel that bringing contracts into a business transaction is not necessary due to your relationship with the customer or just because you prefer to do business that way. This is a huge mistake. Eventually the day will come where a customer refuses to pay and if you do not have a written contract or a clear paper trail of the transaction you will have no paperwork to support your attempts to recover the debt.
5. Not Having A Debt Collection Process
Because this is such an important part of every business it’s very wise to set up a simple, systemised process for collecting unpaid debts. These days much of the process can be automated and even if you’re doing it manually you’ll have a written checklist telling you what action to take and when.
6. Not Hiring A Debt Collection Agency
When a debt has become overdue and your initial attempts to recover the outstanding money has been unsuccessful, then you need to get professional help. A professional debt collection agency will help you recover the funds quickly and without you having to do anything at all.
And the best part is that some debt collections firms now offer a NO RECOVERY, NO FEE.
7. Not Hiring The Right Debt Collection Agency
Of course just like with any industry there are good companies and bad companies. But what’s different in this case is that hiring a bad (unethical, inexperienced, unregulated) debt collector could land you in legal hot water, if they don’t follow the industry rules and regulations around debt recovery.
So it’s important to ask these questions before hiring any debt collection agency.
By being aware of these common mistakes and taking precautions to manage your accounts receivables properly you will enjoy more cashflow and experience less stress due to unpaid accounts.
And as small business owners that sounds pretty nice.
Need a Debt Collector?
JMA Credit Control is an Australian owned Collection Agency with over 50 years’ experience collecting overdue accounts quickly and cost-effectively with a unique personal and professional service. We’ve collected millions of dollars in outstanding debt for our clients and offer a no collection, no charge policy giving you a risk free alternative to collecting outstanding debts.