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Small business owners are the most susceptible when it comes to debt collection. Unpaid and/or uncollected payments on transactions may pose a threat to small businesses as it can take a toll on their entire cash flow and the health of the business.
Debt collection can be stressful if a proper approach is not in place. If not done properly, your venture might end up losing more money either due to expensive attorneys / legal fees and/or other business complications that may come along the way.
Knowing how to strategically manage debt collection is imperative in keeping your business intact. In fact, unpaid dues by a few large clients may already adversely affect your business. It is therefore important to take the help of professionals to have some credit control so you can maintain your cash in flow.
In this piece, we spoke with Scott from JMA Credit Control, a debt collector in Melbourne, and he will be sharing with us some of the biggest debt collection mistakes by small business owners.
1. No Written Contract
This is one of the common mistakes of small business owners. Doing business entails drafting documents and executing the same in order to make the transaction transparent and straightforward. In fact, written contracts yield many benefits as it will ensure that both parties to the contract will honour their obligations provided therein.
Indeed, asking a client to sign a contract may create a little awkward moment but you have to keep in mind that executing a contract also suggests that you are serious in conducting and maintaining your business. The written contract will not only make your terms and conditions binding between parties but it will likewise protect interests.
Your contract will also save you if any dispute arises during business transactions, especially in order to support unclaimed dues or in recovering fees that your clients may have already incurred. Indeed, executing a solid contract that entails all the stipulations that both parties have agreed upon is a bullet-proof system that will help your debt collection easier.
2. Not Doing Enough Research
Doing business means doing all the necessary research to make sure that you have all the information you need to protect your interests and ascertain your prospective customers and clients. Basic data about your clients, such as their business and personal credit reports, matters as this information will prove that your prospective customers will not renege on their contractual obligations with your company.
This is very important if your business provides credit arrangements with larger clients. The copy of their business credit report will provide you comprehensive and thorough data, proving whether they qualify to receive the services your business caters to — including the privileges and other benefits that come with your service.
Some of the information that you will get once you secure your potential clients’ credit report and which may greatly improve your debt collection strategy, in the long run, are the following: (1) Fresh ASIC/Business Name Search; (2) Bankruptcy details; (3) Insolvency details; (4) ASIC current extract; (5) Summary of Partners/Directors business relationships; (6) Past Credit Enquiries on all Partners/Directors; (7) Adverse information on all of the Partners/Directors; and (8) Default information on all of the Partners/Directors, among others.
3. Not Managing Receivables Properly
Ensuring that you’re handling your receivables correctly is part of the crucial decisions you have to make for your business in order for it to survive. If you do not have sufficient time to handle this task, delegating it to someone else is a smart option; this is a viable way in order to recover unpaid invoices efficiently.
You can choose between hiring an expert or appointing someone for that position. If you know that you cannot do it yourself due to your growing obligations and other demands by your company, it is highly advisable to take the former option.
4. Not Hiring A Debt Collection Agency
Pile of uncollected debts has always been part of the equation of doing and growing business which if you don’t respond too quickly and intelligently could mean financial losses for your business — which is not good for small business owners.
Seeking the assistance of a professional debt collection agency is one of the best strategies you can do to place a strong system that’s beneficial for your business to be in its stronger position. Consulting and hiring a collection debt agency has its advantages, such as being able to do your normal duties without having to worry about uncollected dues from your clients. You should also consider the state you operate in. According to Kaplan, each US state has different debt collection policies.
Indeed, this strategy is a tested process that shows positive results while saving you time, effort, and money. If you are a small business owner and you want to make sure that you have everything under control, seek the professional help of an expert.
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About the Author
Richard Scott is a passionate finance writer and business coach who spends his time helping small businesses eliminate debt and implement cash flow positive collection processes.
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