Tips & Strategies - December 2009

Late Payers - What More Can You Do?

1. Interest on Overdue Accounts - Remind your customer that you can charge interest on outstanding accounts and consider applying the applicable fee each month the invoice remains unpaid. (please note your Terms of Trade document must include a correctly worded clause to allow you to claim such interest).
2. Recoverable Debt Collection Fees - Warn your late payers that additional charges will be added to their account if a debt collector becomes involved. You must have a correctly worded damages clause in your terms and conditions and a prior agreement in place with your customer if you want to use this very effective collection tool. Contact Ledger Guard for professional advice.
3. Suggest post dated cheques or weekly/monthly payments if your customer is struggling to pay. Make sure you confirm this arrangement in writing detailing payment dates and any terms and conditions. Include a section for your debtor to sign that he/she accepts the debt in full and agrees to all the conditions. Any such special arrangement needs to be monitored very closely until you have been paid in full.
4. Stop Credit Facilities & Accept Cash Orders Only until the account is current. This is a tough call as you may lose the customer, but is a problem debtor worth holding on to? Blame this action on your accountant or bank manager if this will help you remain onside with a major customer.
5. Follow the Laws & Guidelines for Contacting Debtors if it is your job to collect overdue accounts. This is important as there are legal restrictions on what you can and can't do when chasing bad debt. Refer to the ACCC - ASIC Debt Collection Guideline.
6. Send Out A 7 Day Final Warning Letter to give slow payers notice of placing their account with a debt collection agency. Warn them about recoverable debt collection costs (refer back to bullet point #2). If you mention a debt collection agency by name this will have more impact. It is most important to follow up on your threat if there is no response to your letter. This e-mail address is being protected from spambots. You need JavaScript enabled to view it for a letter template.
7. Use the Services of a Licensed Debt Collector if a promise has been broken, your phone calls are not returned or your 7 Day Final Warning letter is ignored. Statistics indicate there is a 2% risk of bad debt the moment you give credit. By 90 days your default risk has esculated to 25% so don't wait too long to ask for help from a professional.