Chasing overdue invoices is an issue that plagues many SMEs. How can businesses make sure that they get what they’re due? We ask SMEs and experts for their advice.
When you're trying to maintain cash flow, chasing up unpaid debts can be a time-consuming task. After talking to multiple SMEs and experts, My Business has collated the best debt collection tips we could find:
Roger Mendelson, CEO of Prushka Fast Debt Recovery
Dealing with debt is by no means a simple issue, so we talked to an expert. Having worked in the debt recovery agency Prushka Fast Debt Recovery since 1977, and been its CEO since 1991, Roger knows a thing or two about collecting overdue invoices. Here are just four of his tips:
1. Have one person in charge of debts
“[SMEs] always need one person in the business, no matter how small the business, to be in charge of this area,” says Roger.
Their role in the business doesn’t just have to focus on chasing overdue invoices, but having someone responsible for following up debts will be a major help.
“You need someone who is responsible, and someone who actually wants to take it on,” he says.
2. Have a thought-out process
“As part of any collection process there have to be incremental steps at defined periods, and if you fall behind in this, you lose credibility,” Roger says.
3. Get on the phone
Roger also says that phones should be the first port of call, rather than e-mail.
“A crucial step in any internal process is to get on the phone. This is something that lots of people, particularly in this day and age, don't like doing. They're much happier sending an email than actually getting on the phone.”
4. Don't let invoices get too late
For Roger, the most important tip of all is to not let invoices get any later than when they're due.
“If it's seven days trading terms, you'd ring on the seventh day and ask, 'Is there any reason this account is not paid?',” he says.
“If there is some dispute of some sort, you're going to know about it early. If they say they'll pay and they don't, you then know you have a problem.”
If you allow debt to get out of hand, there’s a greater chance of it becoming bad debt.
“If there's a very common mistake SMEs make it's to hang onto debts for far too long, and there's a very clear correlation between the age of the debt and the risk of it becoming a bad debt, like people die or move and can't be found, businesses get wound up, people go bankrupt, all sorts of things can happen.”
“There needs to be a final demand well before then, which lets you keep the client, but the client needs to know that this is a final demand and if it's not paid it will be outsourced to a collection agency.”
Debbie Evans, CEO of Therapies for Kids
For some small business owners, debt is a financial issue. For others, there are social aspects to it.
Debbie tries a different approach by using a man to make the call, as opposed to a woman.
“We do find sometimes that having a man ring a family ... I suppose that's not politically correct, but sometimes that does help,” she says.
Michael Schreiber, CEO of Funlab and Strike Bowling Bar
“[Work] with your banks, try and get as much bank debt as you can, even if that's a small amount. Bank debt is your least expensive form of debt,” says Michael.
“Be able to satisfy those banks, and if you put forward professional presentation that makes sense, and you obviously have security, in the initial stages it's worthwhile establishing a credit record and a banking record with a bank to get going in a small business, because over time, so long as you meet what you promised, your facilities will grow.”
“It's not easy getting money from the banks, but ... if you've had a long relationship, and you've met all your obligations, and they like the space, it gets easier.”
Dean Williams, Vision Personal Training franchisee
“When looking at managing debt … have a really clear payment system and a very clear structure as to when these clients are paying and how they're paying, because I think the challenge a lot of SMEs get into is that they look at getting payments in quite large sums and generally at the end of the job,” says Dean.
“Although that may be fine, I think some of the SMEs that do go better with their cash flow is that they do split up, especially the larger amounts, into smaller intervals, and get those more frequently if they're not caught out if the customer doesn't pay, or if the customer declares bankruptcy or anything like that.”
Grazia Zhou, dispute resolution lawyer at Colin Biggers & Paisley
“No, a caveat can only be lodged against real property … [but] a caveat can be lodged over property owned by a company or an individual,” Grazia says.
“However, a caveat can only be lodged if the person lodging the caveat (known as the 'caveator') has a caveatable interest. That is, if the caveat is protecting an interest in the land.”
“There are certain classes of cases where the courts have recognised that a caveatable interest exists. For example, a purchaser under a contract for the sale of land has a caveatable interest.”
Alexander Laureti, partner at accounting and business advisory firm LMS Advisory
Alexander adds that overdue invoices should be chased up regularly.
“If you're a business owner, debt collection is something that as soon as you have a ledger, that is money owed to you,” Alexander says.
“Make it a part of the role that you do. Doesn't matter how busy you are, it's an important part of your business.”
Alexander also sees debts being resolved by making a bit of noise.
“People hang on to their money for as long as they possibly can, and usually they'll release their money to the people who are screaming the loudest,” he says.
“You can do a wonderful job for someone but until you've provided the service, until you've been paid for that service, then from the perspective of a business owner you haven't had the complete cycle yet with that particular customer.”