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Final demand notice

Cashflow is the lifeblood of any small businesses – but what can you do when your customers won’t pay you.

Debt collection – the bane of all small business. Especially if you are a small business dealing with small business!

This time of year for our business – January and February – is shocking for cash flow. It’s like everyone is behind the eight ball until March. It means I spend a lot of my time asking people to pay us.

But did you know there are guidelines to how you can ask people to pay?

  •  You can’t unduly harass someone to pay their bill. An example would be constantly calling or emailing a customer asking for payment.
  •  Watch your language. You can’t use aggressive, intimidating or abusive language.
  • Make sure you only speak to the person who owes the money – not their family or friends.
  • You can’t coerce, embarrass or shame them publicly into paying.
  • You can’t take their stuff without a court order.
  • You can’t contact them at unreasonable times of the day or in a way they have asked not be contacted. If you ring their phone and they ask that you do not ring again, don’t ring again. Email or snail mail any correspondence.

Consumer affairs Victoria have a list of banned debt collection practices that can give more information.

So what should you do and how can you avoid it getting to this state in the first place?

  • Make you payment terms clear upfront and make sure they are reasonable for what you are providing.
  • Ask for a deposit when commencing the work with the balance payable on completion.
  • Offer multiple payment options – while it may cost in merchant fees it could be the difference between being paid now or in a month.
  • Use direct debit agreements so once the work is invoiced the funds will be automatically collected.

These are steps to help prevent it getting to the debt collection stage but if does what then? Business Victoria has some guidelines on debt collection:

  1. Start with a friendly payment reminder
  2. Contact with an overdue payment reminder
  3. Contact your customer with a final notice
  4. Try to make a direct contact with your customer
  5. Send a formal letter of demand

Remember – make sure you allow a reasonable amount of time between each contact to allow your customer to respond and to avoid harassment.

Another option is to use an automated debtor reminder system such as Debtor Daddy or if you need to go to the next step you can use a debt collection agency. An easy to use self serve option is Collect It Online. With this system you can generate reminder letters for $15 and have a great dashboard that allows you to ensure you are following up in appropriate time frames. Then if the letters don’t work you can escalate to a formal debt collector.

If you do have to go legal to get payment it is important that you can show that you have taken all the right steps to collect the debt before getting to that stage.

We all want our money – but remember to mind your manners and follow a clear process to ensure that all parties understand the situation.