Prepare your business
Establish and review business operations
Be prepared if there is a delay in payment of invoices. Ensure you have safeguards in place to deal with limited cash flow in the event outstanding invoices for goods and services are delayed.
Protect your personal assets in the event of insolvency. Ensure you have a new entity to operate your business which is separate from your personal assets and affairs – it's key you don't unintentionally intermingle your business and personal activities.
Terms of trade
Make sure you are contracting with the appropriate person (individual or entity).
Ensure agreements are in writing, and avoid handshake/verbal agreements which can make debts much harder to recover.
Have terms which provide security for your business in the event invoices, loans or other amounts remain unpaid (such as security provisions, retention of title provisions and/or director guarantees).
Be aware of the Personal Property Securities Register (PPSR) and its effect on your business. The PPSR has significant ramifications on priorities, security interests and the operation of terms and conditions (such as retention of title clauses - at times even rendering them useless).
Managing invoices and payments
Invoicing
Ensure invoices are issued in a timely manner with a regulated process in line with your terms of trade. This will help in avoiding cash flow issues and bad/aged debtors.
Be proactive about the timely payment of invoices. Be clear about your payment terms and follow-up payment promptly.
Keep an eye out for indicators of insolvency. Common indicators include delayed payments, payments in round figures rather than for specific invoices and the need for repayment arrangements.
Customer contact
Maintain up-to-date customer details on an annual or bi-annual basis.
Keep accurate, up-to-date and complete records of communications, payments received, credit notes, requests from debtors and any settled debts.
Before escalating a matter it's wise to contact debtors (a simple phone call will do) to ensure there are no issues as to the quality of good or services supplied, or if there any other reasons for non-payment. When doing so, ensure you follow the ACCC Guidelines for debt recovery. These regulate dealings with debtors including appropriate hours of contact, frequency of contact, location of contact, type of contact and privacy requirements.
Disputes and recovering debts
Dealing with disputes
Record and document any disputes about goods or services. Disputes may be used intentionally by customers or clients to delay payment to the customer/client experiencing cash flow issues.
Be reasonable and commercial. If there is a legitimate dispute about the goods or services then this may only further delay payment and potentially cause other issues. If an issue arises it's often better to reach a compromise with the debtor which takes account of that issue.
Consider your business relationships and reputation. A recovery action or dispute could damage, or even destroy, a business relationship and potential reputational damage may be sustained (such as bad press or word of mouth).
How to recover
Carefully consider your recovery options. There are a vast array of recovery options, and selecting the right one is often difficult and made with little consideration of the associated pros and cons.
Reflect on the debtors position before you take any action. Insolvency may stifle your ability to recover an outstanding amount and may result in a business throwing 'good money after bad' in attempts to recover outstanding debts.
If you engage someone to collect your debts, consider what value they offer. Some collection agencies charge high success fees and hidden expenses - generally 15 to 30 per cent of the amount recovered, not including disbursements or legal fees if the matter goes to Court. They often also undertake limited work for a relatively high fee. If you do appoint a collection agency, ensure they are appropriately trained and licensed.
Consider your businesses alternatives to recovery. Consideration should be given to writing off a debt for tax purposes prior to taking any recovery action.
Ensure you comply with relevant laws if you attempt to recover a debt on your businesses behalf. It's important to be aware of limitation periods, privacy laws, jurisdiction issues and offences that may be committed.
Please contact
Thomas Rice on +61 8 8233 5495 or
Jason Leonardis on +61 8 8233 5442 to discuss ways in which we can maximise your potential, whilst minimising your risk.
