Even if you have sound credit management policies and procedures, you may still incur bad debt. Every business owner has come across a client that has made it tough to get paid for what you provide.
When dealing with debt recovery enquiries, many business owners don’t have the resources to employ someone to collect debts or get a debt collection agency to do this for you.
So how can you recover debts as a small business?
Communication – Make sure you chase overdue invoices immediately. Contact your client the day after the invoice is due which will let your client know that you keep track of your accounts receivable. Check out the client’s situation. They could be experiencing a short term problem or have a valid reason for not making the payment.
Letter of demand – If communication with the client does not result in payment of the debt, sending a letter of demand is a good next step. This gives your client the opportunity to pay the debt without spending the time and money that comes with legal proceedings. You should seek legal assistance or search for samples online for the letter of demand and remember to keep a copy of the letter of demand.
The letter of demand should state details of the debt, include copies of applicable quotes or invoices, request that payment be made by a certain date and warn that debt recovery options will be pursued if payment is not received by the nominated date.
Debt recovery options – Before this step is taken, be sure to consider the real chances you have of recovery, the time taken to pursue the debt, agency costs, legal and court costs, and whether the costs will be recoverable from the debtor.
Advice provided is of a general nature and individual circumstances may vary. It is recommended you seek advice to ascertain your correct course of action.
Michael is a business advisor that gives real and modern business advice that encourages thinking different and using strategies that are unique. To date, he has given over 4000+ hours of advisory with business owners.
He was awarded the Best Business Enterprise Centre Mentor/Advisor Australia 2014 and also the youngest person to ever receive the award.
He is a regular contributor to many publications including the national 'Inside Small Business Magazine', Business columnist for 'The Western weekender', 'The Village Voice' and more.