Debt Recovery

10 Ways Business Owners Can Improve Their Debt Recovery Processes

April, 2014

By John Woodward, Partner

Legal Disclaimer

This presentation is offered for general information

purposes only. It does not constitute specific legal

advice or opinion. You should not act or rely upon any

of the information contained within this seminar

without seeking the advice of a qualified solicitor who

specialises in the particular area of expertise and

jurisdiction that you require.

Introduction

Inefficient debt recovery processes will result in a lot of time and effort wasted, which leads directly to a loss in productivity and poor cashflow.

The long-term effects of continuously chasing bad debts could also result in your business being forced to close its doors. 

To help you avoid this, we’ve put together the following 10 tips to improve your debt recovery processes.

1. Assign a ‘Debt Collections Officer’

Someone in your business should be assigned debt recovery duties. The responsibility of recovering bad debts should ultimately fall under the control of one person.

This ensures the debt recovery process is streamlined and efficient, as opposed to having multiple people within your business contacting the same debtor.

1. Assign a ‘Debt Collections Officer’

If your business has multiple debts with numerous bad debtors, this could even mean employing a part-time or full-time dedicated debt collections officer.

Alternatively, if you do not have the resources to handle this internally, you can assign these duties externally by using a debt recovery service provider, like Turnbull Hill Lawyers.

2. Know Who Your Customers Are (Screening)

If your customers are purchasing high-value goods or services from your business you need to identify who they are and screen them, wherever possible.

This becomes crucial when initiating debt recovery proceedings against them.

In B2B situations, we recommend always undertaking a company search (asic.gov.au).

2. Know Who Your Customers Are (Screening)

In B2C situations, we recommend taking down as much customer detail as possible (driver’s licence, email, mobile number, etc.).

It’s also prudent to double check any details given against publicly available databases, like the White or Yellow Pages, or even social media.

Can you find the customer on Facebook, LinkedIn or Twitter?

3. Offer Incentives for Early or Instant Payment

While this might sound like a no-brainer, in reality, it’s not very common. The easiest incentive to give your customers is obviously a discounted price, however, we encourage business owners to be creative in the way they offer incentives.

Find the right carrot!

3. Offer Incentives for Early or Instant Payment

If you know exactly who your customers are and how they operate, to help foster a stronger long-term relationship, it’s a much better idea to create an incentive that you know that particular customer would appreciate and respond to.

For example, in B2B supplier/distributor situations, the customer may prefer exclusive access to a new and exciting product.

4. Don’t Be Shy, Communicate Verbally

The popularity of using social media, SMS and email to communicate with customers has meant people are no longer picking up the phone.

Non-verbal communication can sometimes appear rude and often gets lost in translation and/or taken out of context, which could lead to you permanently losing the customer. 

4. Don’t Be Shy, Communicate Verbally

We recommend breaking this trend and actually making an attempt to resolve the issue by speaking directly with the debtor, to ensure both parties are on the same page.

This should be the first step your business takes as soon as you become aware of a debt.

5. Clear, Transparent & Accessible Terms

We recommend setting specific and realistic credit limits, payment terms and methods for payment at the beginning of the contract.

In addition, the contract should be clear, transparent and readily accessible to all parties involved in the transaction.

New cloud-based online document management tools (like Alfresco) make this really easy and cost-effective.

5. Clear, Transparent & Accessible Terms

Finally, we recommend having a debt recovery expert involved in this process to ensure the contract and its terms reflect the needs, resources and capabilities of your business.

6. Maintain a Professional & Positive Attitude

Being owed money is frustrating and, in some cases, infuriating, but that shouldn’t stop you from being professional, maintaining a positive attitude and acting civilly with the debtor at all times during the recovery process.

Do not, under any circumstances, make any threats to the debtor. 

6. Maintain a Professional & Positive Attitude

While you aren’t legally obliged to, we recommend offering the debtor flexible payment options, even if those options aren’t described in the contract.

However, this is only recommended in situations where you actually want to retain the customer. Legal action should only ever be seen as a last resort.

Bending the rules a little bit and showing some empathy for the debtor could go a long way in fostering a stronger long-term relationship.

7. Get a Written ‘Payback’ Commitment

While we do recommend picking up the phone, we also believe it’s a good idea to get a written ‘payback’ commitment from the debtor as soon as the debt becomes payable.

This usually comes in the form of an email or letter whereby the debtor acknowledges the debt, explains why it hasn’t been paid on time and promises to pay it back by a specific date.

7. Get a Written ‘Payback’ Commitment

A written commitment can assist you if you end up initiating debt recovery legal proceedings in Court.

8. Have a Documented & Systemised Process

As mentioned earlier in (1), you should have someone dedicated to recovering your debts.

This person should be following a documented and systemised process of invoicing and following up late payments.

Each step in the process should be clearly outlined.

8. Have a Documented & Systemised Process

This process should be readily available to everyone involved in your business transactions, including the debtor, so they know what to expect and how often the debt collections officer is likely to make contact.

Don’t leave them guessing!

9. Keep a Record of All Contact With Debtor

It is important to log all contact with the debtor, including keeping a record of any written communication sent to and from the debtor.

Such a record will be required if you end up initiating debt recovery legal proceedings in Court.

New cloud-based customer relationship management (CRM) tools (like SalesForce) make this really easy and cost-effective.

10. Be Prepared to Pull the Plug

You cannot let your customers get away without paying you forever.

At some point during the debt recovery process, you have to pull the plug and put an immediate stop on the customer’s account.

If your customers are known to each other, like the parents of a day care centre, this also sends a strong message that you will not to be taken advantage of. 

10. Be Prepared to Pull the Plug

If the debt is significant (>$2k), this is usually when you would consider initiating legal proceedings in Court by contacting a debt recovery law firm, like Turnbull Hill Lawyers.

If the debt is small (<$2k), this could mean just copping it on the chin and moving on, as the costs of chasing the debt would outweigh the debt itself.

Turnbull Hill Lawyers – Contact Us

If you have any further questions about debt recovery or you'd like to discuss a related matter, please do not hesitate to call John Woodward on: 1800 994 279 or email him.

We will endeavour to respond to your enquiry within 24 hours.