Consistent cash flow is essential for the long-term health of your business. Plus, no one enjoys chasing overdue accounts. Strategic investment in the right areas will help your business get paid on time and avoid write-offs. Read on for our top tips to help you get immediate results.
1. First, Assess Risk
Before agreeing to provide services to a customer, consider completing a debt risk assessment to determine whether the customer has the means to pay for your goods/services, which may include assessing sources of income, such as government funding or family support.
You can then decide whether to provide goods and services to the customer, and, if so, on what terms.
2. Invest in Robust Contracts
At the beginning of your customer relationship you should set clear, strong and enforceable contract terms setting out how you will bill, what your customer’s payment obligations are - including specific timeframes, and any consequences for late or missed payments.
Consider including terms that allow you to:
Suspend services to prevent further unpaid fees from accumulating.
Charge interest on overdue balances (within any applicable regulatory limits).
Bill the client or their authorised representative personally if government funding is not approved or is approved for a lower amount than expected.
Protect your business against financial and all other types of risks.
To ensure your contracts are robust, have them prepared by a solicitor, who can tailor them to provide critical protection and help you avoid common pitfalls, such as neglecting essential terms or unknowingly violating unfair contract laws.
3. Follow Through on Your Contract Terms
Businesses are sometimes reluctant to press their payment terms when customers miss payments. This is a risky thing to do both practically and legally. Practically, this can encourage customers to delay paying your bills on time as a pattern of behaviour, which increases the risk of bad debts accruing. Legally, there are situations when not pressing your payment terms can amount to a waiver of your payment rights, or an implied agreement, by conduct, to be bound by different (less favourable) payment terms compared with the payment terms you and your customer agreed to in writing.
If you wish to give a customer extra time to pay, you should do so in a way that does not encourage future late payments or impact your ability to enforce your written payment terms in future. Your lawyer can help you set out clear terms for late payment that achieves this without damaging your relationship with the customer.
4. Address Problems Early
It is important to promptly follow up customers on overdue debts. The older a debt is, the lower your prospects of recovery are. All businesses should have debt management policies and procedures in place that support it to monitor for overdue accounts and promptly follow up customers when accounts fall into arrears, using an appropriate escalation procedure.
5. Know When To Seek Help
Sometimes bad debts are unavoidable and your best next steps are to engage a legal representative to act on your behalf. For example, where the debt is large and there are complex legal issues to be addressed as part of the debt recovery process. A lawyer will:
assess your legal standing and prospects for a successful recovery;
explain any legal avenues open to pursue the debt;
help you assess the commercial viability of pursuing the debt;
assist with managing suspension or termination of services if required; and
help you execute your chosen path by preparing the required documents, negotiating with the debtor and issuing court proceedings, if you choose to do so.
If you operate an aged care, NDIS or other health-business, additional regulatory restrictions may impact your prospects and means of recovering your debt and you should engage a law firm that specialises in both commercial law and your industry-specific laws.
Aged Care providers can find additional tips in our guide: Key Steps to Help Aged Care Providers Reduce Debt and Improve Cash Flow.
Need help?
Our team assists with all types of debt recovery, but also has the specialist expertise to support health, disability and aged care providers with their unique debtor challenges. We can also help you take proactive steps to strengthen your contracts and implement effective policies and procedures to manage debts.
To find out more about how we can help you, contact us today at info@kinnylegal.com or 02 9199 4563.
This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you. Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.
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