When you’re in a small business and trying to do it all, debt recovery can be both time-consuming and tricky.
Thankfully, over the 30+ years, we have been in the debt management world, we have learned that there are a few key things you can do to make the process run so much smoother for you.
In this blog our expert Debt Resolution team at EC Credit Control has put together these nine top tips for debt recovery when you are running a small business.
We hope this helps make things easier come payment time.
9 Debt Recovery Tips for Small Business Owners
1. Run credit checks on new customers
- This is the work you do to avoid things going wrong in the first place and to help you decide if your client is going to be a good credit risk.
- Your client will need to complete an application form of some description, usually in the form of a:
- Credit Application Form (for ongoing monthly accounts)
- Quotation Form, or
- Work Authorisation Form (for one-off type jobs)
- It is very important that you make sure your form is well designed and covers all the right questions legally.
2. Make informed decisions about your debtors
- At decision time you may also wish to consider seeking a Director’s Guarantee if they are a Company, and also weighing up the risk if they are a new business rather than one that has been trading for a good while.
- Making informed choices from the outset means a much lower likelihood of debt collection being required, significantly increasing your chances of getting paid first time.
Hot tip: Credit checking the easy way
You may not be aware that at EC Credit Control we do more than just debt collection – we can also help with credit checking online, any time. This is all part of our philosophy of total debt management to ensure you have a well-oiled process that saves you valuable time in your small business.
3. Start with terms of trade
- Putting your Terms of Trade upfront sets out your relationship with your client from the get-go.
- Under the Fair Trading Act, your Terms are only enforceable if you disclose them before your client incurs debt with you – that’s before you start work or provide the goods. This is why it is so important to do it early and put yourself in the best position to getting paid – reducing the need for debt recovery in the future.
4. Go further than a handshake
- We still have many small business customers that operate on a handshake without any paperwork to back them up. It is important to remember that having Terms of Trade documentation is a valid standard business practice.
- Having strong Terms of Trade upfront also has the advantage of making you look professional to your customers and allows you to set a fair and reasonable tone for the relationship going forward.
Hot tip: Delivering your terms of trade
At EC Credit Control we recommend our small business debt collection customers include their Terms of Trade with their initial application forms, making it a convenient process for everyone when the relationship is being formed. Do it over a smile and a handshake – with the peace of mind of having the proper legal documentation as a backup.
5. Create clear processes/systems
- Once you have assessed your client’s ability to cover their debts, the next thing to run effectively is your debt management process.
- Creating effective systems means:
- Sending out invoices on time every month
- Following them up with monthly statements and/or prompt payment reminders
- Have a clear process around when and how you will follow up debt, and review your accounts monthly
- Overcoming any excuses and work through the situation with your customer.
- Escalating the issue to your debt collection agency (that’s us!) if you haven’t been paid after 90 days
- Having clear debt management processes in place will ensure every client is treated with the same level of professionalism, the expectations for payment are set out and your chances of getting paid are greatly increased.
6. Consider making incentives to pay on time
- When it comes to collecting debt up promptly, you can consider including late fees in your Terms as a deterrent.
- While a fee might seem heavy-handed, we need to realise that the real cost of not getting paid rises with each unpaid day. Weighing this up using our calculator can help you put this into perspective.
- Common in many Terms of Trade, a late payment fee or interest charge on the debt owed is a reasonable requirement which helps to recover the cost of not getting paid, and sets the expectation for prompt payment going forward. Your clients are going to want to avoid getting into that situation, so when used effectively this can act as a good deterrent.
7. Use several different channels to contact customers
- Effective communication can be a powerful way of recovering debt in a small business. This means speaking your client’s language using methods they are comfortable with.
Having strong Terms of Trade also has the advantage of making you look professional to your customers and allows you to set a fair and reasonable tone for the relationship going forward.
- It can really help to remember that while you may prefer one mode of communicating, your customers are different people who may receive your debt collection message more effectively another way.
- Utilise multiple contact methods – email, text, messenger – as well as the traditional phone call, letter or visit. Each has different advantages, and if you are having trouble reaching them, it can be prudent to utilise everything in your toolkit.
Hot tip: Get as many contacts as you can
When you are first meeting your client, make sure you keep a record of all their contact details – email address, multiple phone numbers, physical addresses, social media profiles, etc. Store them in a central place – ideally a CRM system, in your mobile phone’s contacts, or a hand-written directory book.
8. Allocate debt recovery to a single person in the team
- If you have a team within your small business, it could be useful to pool your debt collection resources and expertise into one bucket.
- Allocating the task to one specialist can have multiple benefits, including:
- Side note: It’s important to ensure your debt specialist keeps things running smoothly. This is where partnering with a debt collection agency like EC Credit Control can be of real benefit.
Hot tip: Write it down for later
Make sure the process is written down, and notes are kept in a CRM file or similar, so that if your person isn’t there the debt collection process can be picked up as normal.
9. Use a professional debt collection agency
- After 90 days the chances of recovering a small business debt reduce exponentially by the day. In order to give yourself the greatest chance of success it is worthwhile partnering with our team of experts.
- At EC Credit Control we are not just debt collectors, we are a total debt management provider. Whether you need to close gaps in your Terms of Trade, credit check your customers or load your Security Interests on the PPSR, we can help you look at the whole picture and have the whole process running smoothly.
Hopefully, your debt management process will be so watertight that most customers never reach the stage of escalated debt collection. Then, for those that do need this extra level of management, our team of experts will be there.