A big part of running a business is managing and protecting your own financial interests. We show you how to screen for bad debtors, set up clear payment terms and take action when someone simply won’t pay.
Investigate Before You Initiate
Before you jump into a service agreement with a new client, consider whether the client has capacity to pay. A good way to do this is to first make sure you are dealing with a real legal person.
A free ABN search can help ascertain if the person is a self-trader or a company, and whether the company is registered.
A $9 simple ASIC extract can provide basic details about a company, such as the date of registration, latest documents filed, as well as the names and addresses of directors and shareholders. Any signs of deregistration, court orders, charges or false details can set off instant alarm bells.
You can even go a step further and order bankruptcy reports through AFSA, if this is required to satisfy your concerns.
Have Clear Payment Terms, and Stick to Them
Whether your payment terms are on your service agreement, orders or invoices, ensure they are consistent. Make sure it’s clear whether “within 30 days” refers to the date of the order, invoice or delivery.
Once you have clear payment terms, stick to them – the occasional lapse of action on an outstanding debt could raise an argument regarding a variation of the original agreement.
Debt tracking software can be an invaluable tool in helping to keep tabs on due dates, sending payment reminders and distributing invoices on time and in accordance with your terms.
Keep a Paper Trail
A messy payment recovery process can make it very difficult to evidence your steps in recovering the payment, particularly when before a court. Therefore, it’s worthwhile to get into a best practice debt recovery habit, which involves an invoice, an invoice overdue reminder, a notice of demand and a court application for debt recovery.
If you send invoices via email, it’s important to maintain records of sent emails as evidence.
Enlist Professional Help
If you have a number of bad debtors, it might be worthwhile outsourcing the debt recovery process to a professional service provider. The time and effort required to follow up outstanding invoices or take legal action could then be redirected back to your core business – where you are needed most.
Find out how you can get paid as soon as you invoice a customer by accepting payments with PayPal, credit cards and debit cards.