How to get paid – an overview of Debtor Management

You can easily and freely check to make sure that this is correct online nowadays. It’s a really quick thing that a lot of people don’t know about or don’t put into daily practise.

The really critical thing to remember is that if you are engaging with a business that isn’t even registered or you don’t have the correct legal entity on the contract, you may not be able to legally recover from that business if it came time to ultimately collecting the debt. I.e. kiss your money goodbye. A lot of dodgy operators out there call themselves business names and try get away with not paying their debts as they know that it is the your responsibility to check whether they are registered, current and using the right details!

We have seen so many businesses fall foul of this it’s not even funny. And of course, the dodgy people usually get away with it.If it is a company, we recommend you check both the abn lookup (www.https://abr.business.gov.au/) and also the ASIC search function on their website (https://asicconnect.asic.gov.au/)

If you start to deal with the incorrect entity and have the incorrect name on contractual documentation, it can prove problematic and often fatal to any future claim you may have against that business or person.

If a business is not registered for GST, it is against the Law for them to be charging you for it.

Recovering Monies

If you are just starting out, you might consider having fairly strict payment terms.

They could be 14 days, 7 days or even payment upon issue of invoice so that in a week’s time that invoice becomes overdue when you send follow up reminders.

Other businesses require payment of invoices prior to work being delivered. i.e. work is prepared and will only be delivered after confirmation of receipt of funds. E.g. an inspection report for instance.

You need to make sure that it is legal for you to do this depending on your industry and the work being performed.

Many industries have their own “industry practice”, you just have to work out whether that is going to meet your financial needs as a business owner. Lots of small businesses are now starting to reign in their payment terms nowadays we’ve noticed.

Accounting packages often have built in reminders

Thankfully, nowadays, most accounting software packages like Xero have reminders that you can set up which will automatically remind customers/clients when bills are overdue.

A good structured follow up message system can also be helpful – debtor daddy [https://debtordaddy.com/] is one of those that you can tailor messages for the 1st reminder, 2nd reminder, 3rd and then final reminder before sending to collection.

Xero https://www.xero.com/au/ allows you to have auto-reminders set up to send e.g. weekly, fortnightly, monthly statements etc. Other accounting platforms should have something similar.

Finally, if you can connect your billing to a credit card payment gateway provider like Stripe https://stripe.com/au or eway https://www.eway.com.au/, even though you have to pay charges for the convenience, if it means the difference between a client paying you on time or even at all, it’s worth it.

If an invoice remains unpaid

The process of “escalation” is used to increase the amount of pressure on accounts overdue, depending on the size and overdue date.

Invoice sherpa [https://www.invoicesherpa.com/] is a good examples of a follow up system you can use to have a 3rd party telephone these overdue debtors and seek at least some repayment plan over the course of a few months.

It may well be that some parties need time to pay these accounts and could be suffering the same cash-flow issues as you might be experiencing.

The reality is, accounts receivable can be an extremely annoying and costly task. Because it is not necessarily an “income producing activity” in itself, it usually gets left behind. However, as a business owner it’s good to think of it just like an income producing activity in a way because the longer you leave debts outstanding without follow-ups, the more likely it is that you’re not going to get paid for those services.

Obviously it’s a bit easier when you’re chasing larger bills because the benefit is a lot more for the work you do in following up and extracting payment. However, if you have a large number of smaller invoices, it can feel like a very tedious task for not a lot of return.

Some service-based businesses spend as much time chasing invoices as they do completing the initial work to begin with, some not getting paid at all!

Good systems and processes are vital to put into place before the business grows to an administratively large scale that this gets out of control. Best to put them in now, and get used to them and iron out any issues before everything grows and gets too big and costly to wrangle.