1. Be cautious
Credit check new and existing customers up front and keep files up to date. There are plenty of companies that offer this service. Customers defaulting on their payments has a big potential cost to your business if it’s a large amount or you have many of them, so this is a worthwhile investment.
2. Be legally smart
Terms and conditions of purchase are used to define your requirements upfront. Always get your payment terms agreed in writing with your customers and make sure they sign the contract – even for relatively small amounts. This ensures everyone is on the same page and gives you legal support should you need it.
3. Be organised
• You can structure your payments with incentives for early payment, offer a discount for a one-time payment in full rather than spread over time, and/or include penalties for late payment.
• Invoice on time – delayed invoicing leads to delayed payment with negative impacts on your cashflow.
• Chase late payments even in periods of high cashflow.
• Keep a good up-to-date database of customers, payment dates and outstanding payments. Modern accounting services like Xero or MYOB are essential for any SME and make your billing, your accounting and your life immeasurably better.
4. Take steps to recover debt
Make contact with your customer before and after payment is due. Review outstanding payments based on the number of days overdue and the reason for late payment. Having a good understanding of both should create a clear path for how to recover the debt. The Disputes Tribunal is a low-cost ‘court’ where you don’t use lawyers but the decisions are enforceable by the courts.