You’re running a business and you’re busy. The last thing you want to deal with is chasing down money that’s owed to you.
Outstanding debt for a business can drastically impair your cash flow. Consequently, it may be crucial that you collect the outstanding debt as fast as possible. Sometimes you will have no choice but to engage a professional to assist you. However, there are some steps that you can take to try to collect the debt yourself.
In this article, we set out some pointers and key information to assist you in how to collect debts yourself, before you need to engage a professional to assist you. It is not a substitute for legal advice, so if you would like to discuss anything in this article, the debt collection process generally, or require advice tailored to your circumstances, book a free call with our team or call on 1300 80 67 80.
Step 1: Identify the debtor
When you’re trying to collect a debt, the first step is to identify the debtor.
This might seem like a simple task, but you’d be surprised at how many people get this wrong. We often see businesses struggling to collect debt due to incorrectly identified debtors.
Here are a few tips to help you get started:
- Check your records. If you’re owed money by a business or individual, you should have some kind of record of their contact information. Check invoices, receipts, contracts, and any other documents you have for clues about who you’re dealing with.
- Do some research. If you don’t have any records of the debtor’s contact information, try doing some online research. A simple Google search can often turn up useful results. You should also check Australian databases such as ASIC or ABN Lookup.
- Ask around.
Hot tip: It is important to note that a company is not the same as a business name. A company is a separate legal entity like a person. A business name on the other hand is just that, a name, and can be owned by a person or a corporate entity. For that reason, it is important to understand who the debtor is from the outset.
Step 2: Try to contact the debtor
Whilst it might seem basic, but if you’re trying to collect a debt, you need to contact the debtor. If they don’t respond, don’t give up – try again. You’ll quickly get a feeling for whether the debtor is trying to avoid your calls or emails.
It’s important to be persistent when trying to collect a debt. The debtor might have missed your first attempt to contact them, or your invoice might have gone astray. So, it’s important to try again. Keep in mind that old saying “the louder you yell, the more likely they are to pay attention”. Obviously, we do not recommend you actually yell (it’s important to remain calm and professional even when you are frustrated), but if you remain persistent and the debtor does want to try and pay the debt but has some cash flow issues, the debtor is more likely to get your invoice paid before someone else who is not being as persistent.
If the debtor does not return your calls and emails or continuously promises but fails to pay, you should send a letter of demand.
Hot tip: Make sure your correspondence is going to the right person. If you are not getting any response, try copying in other email contacts for the debtor that you have. For example, any sales associate you dealt with, the accounts team and/or the owner of the business. If the invoice has not been paid for some time, check online to see if there are any new email addresses or phone numbers you should be using.
Step 3: Send a letter of demand
If you are owed money by someone, you can send them what is called a demand letter. This is a formal notice asking the person to pay you the money they owe. It is important to know what to put in a letter of demand, as this will increase your chances of getting paid.
You should obviously include in your demand letter how much money the person owes you. It is also helpful to include any relevant information, such as when the debt was incurred and what it was for. You should also give the person a deadline for payment, and state that if they do not pay by this date, you will take further action. Download your free template of the letter of demand.
Further action could include taking them to a court or using a business lawyer. Often, just sending a demand letter is enough to get the person to pay their debt but sometimes you’ll need to consider taking further action.
When you send the letter of demand is up to you. You might send one after the debt becomes payable, within 7 days or after you have exhausted all other options. We do not recommend you take too long to do this as generally the longer a debt remains unpaid the more difficult it can be to collect it, however, there may be a number of considerations that you need to consider such as your commercial relationship with the customer. Ultimately it is a matter for you.
Hot tip: Invite the person to contact you to discuss the resolution of the debt. If they are struggling to pay this might help to encourage them to try and negotiate payment of the debt.
Hot tip: We recommend you send the letter of demand by email, but you can also send the letter of demand by express post so that you can track and confirm it has been received.
Step 4: After the demand letter: Negotiating a payment plan
If you have sent a demand letter and the other party does not respond, only offers a partial payment, or responds to advice of genuine cash flow issues, you can try to negotiate a payment plan. Here are some tips on how to do so:
- Send a follow-up letter outlining your proposed payment plan. Include the total amount owed, the time period for repayment, and any other terms of the agreement.
- Get everything in writing so there is no confusion about the terms of the agreement later on.
- Be flexible with the repayment schedule and try to accommodate the other party’s needs, but don’t agree to anything that you cannot afford.
Hot tip: Make sure that both parties sign and date the agreed payment plan. This will assist you in enforcing the payment plan agreement in court if necessary.
Final Words – The importance of being proactive
Debt is something that can easily get out of hand if not managed properly. Being proactive and taking action to collect the debt as soon as possible is crucial in keeping debt from spiralling out of control.
There are a few key reasons why being proactive when collecting debt is so important:
- The sooner you act, the easier it will be to collect the debt. The longer you wait, the harder it will be to track down the debtor and get them to pay up.
- Acting quickly shows the debtor that you’re serious about collecting the debt and that they need to take you seriously as well. This can help motivate them to pay up more quickly.
- The longer you wait to collect a debt, the more interest and fees will accrue, making it even more difficult to recoup what’s owed to you.
If you have tried all of the suggestions in this article and are still hitting a brick wall, or if you just want to find a professional who can take care of your debt collection processes, we encourage you to book a free appointment with our team to discuss your options and likely costs or call 1300 80 67 80.
Our team has extensive experience assisting businesses to collect debt in a range of industries, including maritime and other transport providers, real estate, cleaning businesses, and manufacturing just to name a few.