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Tips to deal with clients before bad debt burdens

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Anyone who has ever had a troublesome customer who's tardy with an invoice payment, or who simply refuses to cough up the dough, knows the pain it can cause to your business’ cash flow and general profitability. Enter Colin Porter, founder of CreditorWatch, who has identified the burden this places on a small business and attempts to solve it through his service.

Porter knows the strain of bad debt all too well, having managed a media company a couple of years back, and found bad debtors were weighing on his operations and piece of mind.

“It was frustrating for me to work hard, win work, only for bad debts just to reduce my profitability of the business,” he says. “I looked at other reporting bureaus, such as Dun & Bradstreet and Veda. However, their main core clientele seem to be corporates. It just wasn’t something that I could see us using.

“The corporates use this type of system effectively and it’s their key risk mitigation tool,” he says. “I looked at how they operated and how they developed their business and that was the first step towards creating CreditorWatch.”

Porter’s business serves as an online credit reporting agency which allows businesses the forum to report bad debtors and receive alerts when businesses they deal with (or are planning to) are reported. This, for small businesses without a lawyer on reserve or an arsenal of accountants to chase delinquent payments, can prove a lifesaver.

With research from Dun & Bradstreet showing that severely delinquent bills (those bills left unpaid for 90 days or more) are at a 12-month high, the service is one in great need.

“SMEs are very good at what they do in delivering a product or a service, but from the back-end, from chasing payments, doing credit checks and the like … it’s a weakness in most,” he says. “They’re generally afraid to chase a debt from a customer for fear of upsetting them.”

Of course, if a customer simply refuses to pay, an SME can take legal action. In New South Wales, for example, a statement of claim can be filed for those goods and services you are entitled to get payment on.

In his last business, he was advised that involving a lawyer or taking court action was too expensive and to accept that the “money is gone and move on”. Now, with CreditorWatch, Porter’s advice is to do the legwork before you engage in any transaction with the client to avoid troubles down the track.

So what are his strategies for avoiding bad debt?

“Make sure you’ve got good terms and conditions. That’s the starting point.”

Then, it’s essential to do a credit check on the potential customer.

“With our users, they can come onto our site, they can look up the ABN of the business and within a couple of seconds, they can see their ASIC status and if there’s any defaults registered against them,” he says.

Once the goods or services has been delivered, the key is communication.

“When you send an invoice, especially to a new customer, contact them and say, ‘Just wanted to confirm you received our invoice and payment is due at the end of the month’.”

Then once the payment timeframe has lapsed, call again.

“Call them a couple of days after the end of the month without leaving it to sit there for 30 or 60 days. Call them just to confirm that the payment is going to be made in the next couple of days,” he advises.

Porter also advises businesses to be wary of the typical red flags.

“Be aware of the typical excuses of businesses of why they haven’t paid their bill. It might be ‘Sorry I didn’t receive an invoice. Can you send it again?’ or ‘The cheque is in the mail’.”

By keeping on top of your debtors, your invoices stay top of mind.

“You’re really showing them that you’re serious about your credit terms and that [you’re] one of those companies that does chase debt and stays on top of it.”

The persistence does pay off and will prove your cash flow is always under control so that your business can avoid the red for the black.

If you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, February 20, 2012

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