Top Tips for better debtor management

Unpaid invoices can make or break a business where cash flow is king

Debtor management is a vital part of operating a small business – check out these top tips for ensuring that unpaid debts don’t put undue pressure on your company.

Your terms and conditions need to be clear and unambiguous. They cannot be interpreted 2 or more ways. They need to be written plain and simply, without confusion. It is best that you have your terms and conditions legally drafted or checked to make sure they are legally enforceable.

Many businesses only pay accounts once a month to save on bookkeeping and administration costs, so you need to know exactly when your accounts will be paid. Additionally, some businesses require invoices to be sent by a certain date to ensure that it is processed in the next pay cycle. This may involve you issuing the bill prior to work being done in order that you receive payment. However, if it is not authorised, you may not see the money until the next pay cycle, i.e. up to 2 months from sending invoice.

Invoice small and regularly. Bill shock is a good way to make unhappy clients. If you operate a B2B (business to business), it is best to invoice in small amounts.

If you are performing ongoing work, make sure you provide them with clear estimates of what work is needed to be done, scope out the work and seek their agreement before doing the work. Some industries legally require you to do this, but it is generally considered best practice in any event to disclose all your costs, how you charge, what you charge for and a genuine estimate of what the costs are likely to be, what will increase the amount of costs (e.g. the matter becoming complicated, unanticipated change in instructions, unexpected delays etc).

You may also consider invoicing in stages if the work is over a period of months. An initial non-refundable deposit might be a good way to get the work underway and for you to cover your fixed expenses. E.g. 20 per cent immediate deposit or even 50% now, 50% on completion, or any other variation.

Set up immediate debt reminders and reconcile accounts regularly so they are up-to-date. Clients don’t like to be sent reminders for accounts which they have already paid. Also, make sure you send payment receipts for when monies come into your account. This way, the client isn’t left wondering whether you have received their payment and there is some professionalism about it. Thank them for their payment, they will appreciate it and potentially engage you for more work.

If the amounts start to become overdue, you may consider calling them to find out when you can expect payment. This puts the onus back on them to justify why the account has not been paid and you will often find with some organisations that only the “squeaky doors get oiled”. You might start with a courtesy call to see whether the accounts are going to the right person and see when they can be paid. Put a reminder in your calendar to follow up if they are not paid by that date. A tight leash is a good approach for debtor management so that clients are aware that they have overdue accounts.

Keep a written record of conversations you have with debtors in relation to accounts. Write down what they promised you and what amounts by when. This may be crucial if it comes time to refer the matter to a debt collector or lawyer. You might also consider sending a follow up email stating “Dear …, thanks for your time today on the phone. I note the account is x days overdue now and you have promised to pay the account in full / instalments in the amounts of $X and on Y dates as follows: …” This way there is also a written record of their agreement to pay the accounts.

Contact us today if you require any assistance with preparing or reviewing your Non Disclosure Agreement.

(c) Progressive Legal Pty Ltd – All legal rights reserved (2020)

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