Collecting debt is something every business owner will have to deal with. Whether it’s the general accounts receivable process or collection outstanding debts from delinquent customers, debt collection is a vital part of every business.
Debts in your business can have a direct impact on your cash flow, and without a healthy cash flow, the future of your business is under pressure.
However, debt collection can be easy for any business, as long as it is managed carefully and strategically, so today, we’re going to tell you about some of the common mistakes small businesses make when it comes to debt collection. This way you know exactly what you should avoid doing.
They don’t have contracts in place
It doesn’t matter how small or large your business is, a contract is going to be the easiest and best way to protect you and your business.
Your contract will outline all of the requirements of doing business with you. And while the contract is there to protect you and your business, it also outlines what your client or customer can expect from your business, so it is there to protect them too.
When businesses are starting out, sometimes conversations about contracts and expectations can feel awkward. However, by having contracts in place it shows your customers that you’re serious about what you do.
If a dispute arises between your business and a client, without a contract, proving the expectations and requirements can be difficult, especially when it comes to fees and payments.
When you create a contract for your business, you can also learn what does and does not work for your business, and over time, you will end up developing a solid contract that makes doing business a whole lot easier for you and your team.
They don’t research prospective partners and clients
Knowing who you’re going to be working with when it comes to your clients can save you a lot of headaches in the future. Which is why we suggest doing your research before making deals with anyone.
While the depth of research you conduct will vary based on the value of your service and whether a client is going to be a once-off or ongoing customer, it still pays to know who you’re working with.
If you’re providing any goods or services on a credit basis, the best thing you can do is to run a credit background check on your prospective client.
You can essentially get a report that will show their payment and credit history. This is useful because the best way to predict future behaviour is past behaviour. This way you can identify red flags such an unpaid debts and regular late payments.
They don’t have a proper accounts process
Accounts for any business are a challenge. There’s a reason big businesses end up with large account teams for both payables and receivables. It’s an important area as this is how your cash flow is maintained.
All the sales in the world won’t save your business if no one is paying you at the end of the day.
So, one of the best investments you can make is a great accounts process. Whether this means undergoing training so you understand it or hiring an expert to manage your accounts, this role is extremely important and shouldn’t be an afterthought.
For a lot of small businesses, having a dedicated accounts team member is often overlooked, which means that the management of these processes is something that is done after a lot of other business tasks. While this is common, it is our advice to make sure your accounts processes are established and managed properly.
They are not updating their terms and conditions
What your business needed when it was first starting out vs what it needs once it’s been around for a while, is going to be different. You need to make sure that your businesses contracts and terms and conditions are updated regularly to ensure that your clients are going to be able to meet the needs of your business now, not the needs of your business back then.
Many large businesses update their trading terms and terms and conditions documents on an annual basis. This may be overkill for your business depending on its size and what you do, but it’s important to make sure that you have the most relevant information presented to your clients. That way you can keep moving forward and growing as a business.
They don’t work with professional debt collection services
When it comes to collecting debts, something both individuals and businesses have in common, is not knowing when it’s time to let go of their in-house debt collecting attempts and bring in the professionals.
Outstanding payments and debts already put excessive and unnecessary pressure on businesses. When you add the time that you’re spending trying to retrieve this money, you’re adding even more pressure. And unfortunately, if a debt has been outstanding for a while, and it’s not just outstanding because someone has forgotten to pay it, the likelihood of you being able to recover that debt yourself is significantly low.
A professional debt collection agency has the skills, knowledge, and resources to recover these debts. Because it is what they do. And in many cases, it’s a low cost and low risk option for your business. Especially if they offer a no recovery, no fee policy. You already don’t have that money, so if they can’t recover it, you’re not losing anything else. Though, in most instances, a debt collection agency will be able to recover that debt.
A great option is as part of your accounts process, incorporate partnering with a professional debt collection service into the process. If you haven’t been ablet o successfully recover your payment by this step, then it’s time to bring in the pros.
Do you need a debt collector for your small business?
If you own or run a small business and you’re looking for a debt collection agency to partner with, then we might just be the right team for you.
Here at JMA, we’ve been working with small and medium sized businesses all over Australia to help them recover their debts for a long time now. Our team includes over 50 years of hands-on experience and trust us, there isn’t a scenario we haven’t seen. So, if you’re looking for debt collectors to help your business anywhere in Australia, give JMA a call.