3 tips to stop outstanding invoices from becoming cash flow problems
Over time, unpaid debts can have a devastating effect on the operations of a business, impacting cash flow, and potentially rendering it unable to operate or pay its suppliers or staff.
Article contents− +
We spoke with Matt Pittorino, CEO of Ezi Debt Collection, Australia’s only free-to-use debt collection company founded and operating entirely in Australia. Ezi Debt Collection operates on a no collection, no fee model, only charging a collection fee on balances recovered.
Matt had a few key points of advice that business owners can introduce to reduce the risk of cash flow problems caused by overdue debt.
1) Have a communication plan and be clear and consistent with your clients
Matt claims that a common characteristic of successful debt collectors is that they are effective communicators who set clear expectations, and can successfully mediate issues raised around the debts.
“In many cases, a debtor will have legitimate concerns about a debt, but will be happy to make payment once these have been addressed”, Matt says. “Often, creditors will be completely unaware of these issues simply because they haven’t spoken to the debtor”.
Business owners also shouldn’t feel bashful or hesitant to reach out to their customers for aging or overdue invoices, Matt claims. “In many instances, investing a little time and energy into cordial and clear information about the status of an invoice will save you hours of work”.
As a guide, Matt recommends sending a reminder 2 days prior to the invoice due date. The first overdue notice should be sent the day following the invoice due date, with another reminder sent one week after.
If payment still hasn’t been made after this, a letter of demand should be sent, clearly referencing the invoice and outstanding balance, as well as highlighting the intended course of action against the debtor.
2) Don’t wait too long to engage a debt collector
While Matt recommends performing your own due diligence around debt recovery, he also states that it’s very important act early when looking to engage a debt collector.
“Anyone with experience in the debt collection industry will tell you that the newer the debt, the higher the chances of repayment. Ezi Debt Collection’s statistics show that the older the debt, the less likely it is to be collected upon; debts over 18 months in age are 20% less likely to be collected upon than average”.
Matt says that as long as the debtor has been made aware of consequences for continued non-payment, creditors should not be shy about engaging a debt collector.
“If you’ve followed a communication strategy, then you’ve completed your due diligence with a debtor. A good debt collector will help you get paid without harming your customer relationships”.
3) Use an accounting software tool
“It’s amazing how many business people don’t realise that a debt is outstanding simply because of manual processes and forgetting to follow up”, Matt says.
Using appropriate accounting software not only helps businesses keep accurate records and provide timely updates as to the status of invoice payments, but can also prevent debts from ageing without being noticed by the creditor.
For example reminders can be automated reducing the risk of overdue invoices being overlooked and forgotten about until it might be too late.
Matt also notes that accurate records can help to preserve the customer experience for a business.
Sometimes, creditors will pass on debts to a collector without realising that they have already been paid. This can be a rude shock to a customer who has done the right thing in paying on time”.
So it seems clear and consistent communication is the key to minimising overdue invoices and bad debt, but if that doesn’t work outsourcing collection with the right agency could save a whole lot of time and stress.
Rounded is a great tool to help remove the stress of overdue invoices. At a glance dashboard information and automated reminders give you more time to focus on your business. Sign up for the 2 week Rounded trial now and see for yourself.