Top Tips for Debt Recovery
In the current economic climate, many businesses are finding their invoices going unpaid and struggling to recoup overdue debts. Below are 4 useful tips to help you and your business recover debts more effectively and efficiently.
1. Know who you’re dealing with
When taking on a new customer, make sure you get their legal name (or company name and ACN), their address and an email or mobile phone. The more information you have about a person or company, the less likely you are to find that your debtor has disappeared when it comes time for payment of your invoice.
For companies, you can even run credit searches through companies like InfoTrack or SAI Global to see if they have existing payment defaults or court judgments against them.
2. Be up-front about your prices
Clear communication is key to preventing disgruntled customers from refusing to pay your invoices. Always be clear about how much you expect to charge and if there are any factors that could affect this amount.
3. Protect yourself with your contract
Having a set of clear terms and conditions is an effective way to ensure that all parties have a clear understanding of their rights and responsibilities. Your terms and conditions should be provided to and signed by your customers before you begin supplying your goods and services.
A few key issues that you might want to address in your contract are:
a. What is your interest rate? Make sure your interest clauses aren’t interpreted as “penalty interest”, which is unenforceable.
b. Can you recover your legal fees and if so, how much? With a carefully worded clause, your contract can entitle you to a higher proportion of costs than a Court would ordinarily allow.
c. How can you serve Court documents? A Court’s requirements for personal service on debtors can prove difficult and time-consuming. Your contract can provide for an agreement for service on your terms.
What happens if your client is a company and doesn’t have the money to pay your invoice?
Except in certain circumstances, a director is not automatically liable for a company’s debts, even if they are a sole director. You can protect yourself if a company that is your customer goes bust by obtaining a guarantee from an individual. This person could be a director of the company which is your customer but doesn’t necessarily need to be. A properly drafted guarantee ensures that the person who signs it will also be liable for the debts owed to you by the company.