With a new financial year upon us, coupled with further weakness in business conditions being exacerbated by political uncertainty now is the time to review your business processes. It can be frantic at the end of a financial year, which means things, like the collection of outstanding invoices, can slip. But with an estimated $26 billion owed to small businesses in unpaid invoices at any one time it is a recipe for a cash flow crisis if things are allowed to slip for too long.
So how can you get back on top of your business processes?
1. Review the credit application forms
The first step is to review the credit application forms completed by your customers and make sure they match the amount and terms being given. For example, if the credit application form states that $1,000 credit is allowed and the amount of outstanding invoices is $10,000 then an investigation is needed.
Of even more concern, if you discover a credit application form has not been completed by a customer then this needs to be remedied immediately.
2. Review guarantees
As with the review of your credit applications forms, it is essential that a review of guarantee forms completed by your customer is done. Again, if a guarantee has not been completed then you must obtain one from your customer.
3. Make sure there is a consistent approach to issuing invoices and chasing payment
There is nothing that makes it easier for a debtor not to pay an invoice than you either forgetting to issue it, or not do any follow ups for payment. Don’t expect your customers to contact you and ask you to send an invoice! It is important to remember the longer a debt remains outstanding the greater the chance it will not be paid. After 90 days it can extremely difficult to get payment.
The entire debt collection process should be consistent – not just the issuing of invoices. Reminder letters, final demand letters and the eventual engagement of a debt collection agency, when required, should all be consistent and triggered at certain points – eg the invoice not being paid by a certain date.
4. Place customers on a stop credit
It is time to take action on some of your customers who are not paying their outstanding invoices. Let them know that you are serious and that you cannot continue to provide them with more credit whilst they still have outstanding amounts that are long overdue. This may jolt them into action and start negotiating a payment plan. If nothing else, it will at least stop the debt growing.
5. Call in the professionals
Sometimes you need help from a professional. It may that you need help in streamlining debtor risk assessments; processes for invoicing and collection systems or even collecting a long outstanding debt that you know you won’t get paid unless you get some help to collect it.
Get your business processes back on track in the new financial year so that you can focus on the more important tasks like growing your business.