What to do when customers won’t pay
Unfortunately, when dealing with customers on credit terms, you’re likely to encounter the customer who just doesn’t pay despite having received your goods and/or services.
Have policies and procedures in place
Having written policies that govern when credit can be extended and on what terms and how it will be pursued when overdue is imperative. Depending on your industry, get new customers to complete an account application form, or agree to and sign a quotation of fees or engagement agreement so you have a mutually binding agreement. This helps set expectations.
Chase the debt
Make sure you actively pursue the debt. This may include friendly overdue reminder letters and phone calls. If you know your customer has a cash flow problem, ask them to pay in installments. Businesses who don’t follow up usually get paid last, so having a debt recovery process in place will often get your business paid ahead of someone else.
Consider a debt collector
Whilst debt collectors don’t have additional legal powers, they are more practised in this area and may have more success in chasing your bad debtors. Using a debt collector can be a good idea if your business doesn’t have in-house staff to chase the debtors. Be sure to ask around for recommendations and also be aware of their costs and fee structure; commercial agents normally collect fees and receive as income a percentage of the funds they recover on your behalf.
Speak to a lawyer
If you’re at your wits end, consider speaking to a lawyer and see if it is worth your while taking legal action. This will depend on the amount of the debt and if the company in question has the ability to pay. One advantage of legal proceedings is that the initiation can often bring negotiation and mediation.
In summary, consider these tips when dealing with bad debtors:
• Perform credit checks on new customers/clients;
• Get customers to complete credit application forms;
• Have processes for actively chasing debts and sending reminders;
• Specify consequences for missed payments;
• Outsource to a debt collector;
• Consider taking legal action.
Our lawyers at The Quinn Group can assist you in recovering your debts. We can also issue a ‘Letter of Demand’ on your behalf. Contact us on 02 9223 9166 or submit an online enquiry at www.quinns.com.au