You are here: Home / CGLaw / Is your business the squeaky wheel?

Are your debtors paying you in these uncertain economic times? Or are they using you as a bank? If you want to stay on top of your debt management we’ve learned that this is a situation where the squeaky wheel may be the only wheel that gets the oil.
 
With cash flow tightening for many individuals and businesses on the back of rapid interest rate rises and high inflation, it is critical to ensure your business’ debt collection policies are set up to protect the financial future of your business.

Debtors experiencing financial hardship have limited resources to pay their often multiple creditors and there might not be enough to go around.  With other creditors like the ATO increasing their recovery efforts, it is important to act firmly and swiftly to ensure your debt stays at the head of the queue.     
 
Here are some tips we recommend to help your business have the best chance of being paid first:  
 

  1. Review your trading terms and conditions, especially if you supply goods or services on credit. You should avoid extended payment terms. We recommend 7 to 14 days;
  2. Your terms and conditions should where possible secure payment by, for example, getting a personal guarantee from an individual if your agreement is with a company under which the individual agrees to pay if the company does not.  You may require your customer to pay a deposit upfront, if not more. Or you might ask your customer to grant you rights over their real estate and/or personal property, which you can exercise in the event of late or non-payment;
  3. You should obtain as many details about your customers as possible. This will aid in locating the customer, which is important if they owe you money;
  4. Where an account is outstanding, be sure to act immediately.  For instance, as soon as your payment terms are exceeded, send your debtor an email, text message or letter to touch base as the debtor might have unintentionally forgotten to pay or simply missed the invoice;
  5. If payment is not received in the next 2-7 days, you should phone the debtor.  Sometimes, a call will prompt the debtor to pay or allow them to explain the delay in payment. This gives you the opportunity to discuss any alternative payment terms that may be acceptable to your business. Keep in mind that receiving a slightly reduced lump sum or the whole debt over several instalments might be quicker and cheaper in the long run;
  6. Should that follow-up correspondence and call not do the trick within another 7-14 days, it is important to continue being proactive. We recommend no more than one further call or email/text/letter to the debtor noting that if payment is not forthcoming, you will engage a law firm or debt collection agency to pursue recovery;
  7. If there is still no contact or payment from the debtor after that third call or piece of correspondence, we suggest showing the debtor your seriousness by retaining a law firm to send the debtor a letter of demand on their letterhead, which includes what might happen if the debt is not paid in accordance with the letter; and 
  8. Where a lawyer’s letter of demand does not produce payment, it may be necessary to commence legal action. For debts under $25,000, the Queensland Civil and Administrative Tribunal is designed for creditors to represent themselves, which is obviously less expensive than paying a lawyer to act for you.  For debts of $4,000 or more owed by a company, creditors can serve a Statutory Demand on the debtor that, if not complied with in 21 days, can deem the debtor insolvent and open other courses of action to the creditor. Additionally, the Queensland Courts provide an avenue to seek payment and if successful, a portion of any legal costs you incur are generally recoverable. 

By following the steps above and being consistent, your business will give itself the best chance of being at the front of the line when your debtors are choosing which of their creditors to pay. Remember to be that squeaky wheel.

Prevention is better than the cure, so if you would like your debt collection procedures reviewed, or your debtors are mounting, please get in touch with our Litigation + Dispute Resolution team to discuss how they may be able to assist. 

For further information please contact Harrison Humphries, Director.