Are you walking away from half a million dollars profit? How to recover your small Debts.
It is not worth chasing small debts right? Wrong! If you discount your invoices, or write off small debts, you are walking away from potential serious profit.
A discount of only $500 over say 1,000 invoices in a year, adds up. That is half a million dollars which would go straight to your bottom line!
So how do you recover those small debts without spending more time and money than it is worth?
The key to debt recovery is understanding that people are much more likely to pay you when they still need your help. If possible, take payment before or on delivery of your goods or services. Or at least take a deposit upfront and then render an invoice for the balance on delivery.
How to chase your debts
Follow up outstanding debts consistently and politely. Follow ups must be systematic and increase in intensity as debts become older. That should be enough to collect most of your debts. Any debts that are still unpaid will then fall into 3 categories – customers who are:
- Hoping you won’t chase them;
- Unhappy with your goods or service; or
- Don’t have the money to pay you.
You need to deal with each of these categories differently.
Being smart with your legal options
For customers who are hoping they can get away with not paying you, a Letter of Demand or Statutory Demand from your lawyer will usually result in full payment. That should be able to be done quickly and cheaply.
For those who are unhappy with your goods or services, you will need to address their concerns. Do this before you engage a lawyer or you will end up in a costly dispute. If you can’t satisfy your customers legitimate concerns you should consider if a discount is appropriate. Any discount must be conditional on the balance being paid promptly though. Don’t give a discount only to then have to chase the discounted figure!
If the customer says they do not have the money to pay you, it is worth asking them to provide evidence of their financial position. Crying poor is common and usually exaggerated. If they can show they don’t have the money to pay you now, a payment plan over time is justified.
Terms of Trade
You can also put yourself in a much better position to recover debts by having clear payment terms in your trading documents and being selective about your customers.
You should ensure your customer contracts include a personal guarantee so you can recover from the director personally if a company can’t pay. If your customers won’t sign a guarantee, you need to ask why not? Are they planning on not paying you? It’s better to have that discussion up front.
You should also include a costs indemnity in your terms of trade so you can add your legal costs on top of the debt. That will save you money and encourage debtors to pay before you engage a lawyer.
Following these suggestions should improve your cash flow and increase the profitability of your business without having to increase your revenue.
If you have any specific questions, please reach out to our experienced team at Taurus Legal Management on (03) 9481 2000 or at firstname.lastname@example.org.