If you operate a business where you sell products or services on account, then sooner or later you’ll have to deal with someone who doesn’t pay their bill on time.
It’s easy to put off chasing up the debtor in the hope that the money is on its way but being proactive will show your customers that you are serious about enforcing your credit terms and increase your chances of recovering the debt. Research shows that the longer you allow a debt to remain outstanding, the greater the chance that it won’t be recovered.
Reducing the likelihood of late payments begins with good accounting hygiene. For example:
- Do you make it easy for your customer to understand your terms, for example, payment on receipt, within seven days or 30 days?
- Do you provide your bank account details or other payment methods?
- Is your ABN listed on the Invoice?
- Do you keep up-to-date with your bookkeeping?
- Do you consistently follow up late payments? If you get in the habit of letting people pay late then in all likelihood, you’ll be paid last if things get tight for your customer. It’s good business to stay up to date and not allow yourself or your customers to slip into bad habits.
If you find yourself in the position of having to chase a debtor, you should follow the guidelines set down by legislation. The debt recovery guidelines state that you should avoid harassing the Debtor. This includes appropriate times to contact a debtor, privacy obligations owed to the debtor and provision of information and documents that may be requested. The debtor has the right to complain about behaviours that contravene their rights to particular government agencies and the police.
Stay Calm and Keep an Accurate Papertrail
It’s best to stay calm and detached when communicating with the debtor. You should keep accurate records so that you have a clear paper trail to rely on if the situation escalates to legal proceedings.
If you’ve sent out the invoice and statement and the payment has not arrived. The first thing to do is to send a reminder like this – Download Sample Reminder Letter
After seven days, if there is no response – pick up the phone or visit the customer. Sometimes bills get overlooked or forgotten, and people just need a gentle prod.
If that doesn’t work, then you need to get serious in your approach and send a “Letter of Demand” but you should only do so if you are serious in your intention to start legal proceedings. Don’t do it if you’re not serious and don’t be tempted to send a letter which is designed to look like a court document because this is illegal!
A Letter of Demand sends a clear signal to the debtor that you intend to start legal proceedings unless payment is made in full. It also provides written evidence of your claim and your attempts to settle the matter. Download Sample Letter of Demand
You should attach all the relevant information to the letter of demands, for example, terms of trade, contract, invoices, statements, diary of communications with the debtor and so forth.
Keep a copy for yourself and send it via fax or post. We live in a digital age, but this is one situation where hard copy is best. Send it registered or express post so you can track its receipt and be prepared to take the appropriate action depending upon the debtors response.
Alternatively, if chasing the debt yourself is not possible, you can pass the debt onto a collection agency and they will take care of the matter for a fee.
