Small business owners are the most vulnerable when it comes to debt collection. If not done correctly, in fact, your business might end up losing more money due to expensive legal fees or other problems that may occur during collection.
Indeed, uncollected and/or unpaid payments on transactions may pose a big threat to small businesses as it can take a toll on their entire cash flow and the health of the business.
Debt collection can be quite stressful if you don’t have a solid process in place. Knowing how to strategically approach your clients and manage debt collection properly is imperative in making sure that your business is able to stay afloat.
In this piece, we spoke with Scott from JMA Debt Collection in Melbourne and he will be sharing with us some of the biggest debt collection mistakes by small business owners.
1. Not Doing Enough Research
Part of conducting a business is making sure that you have all the information you need to protect your business. This is also crucial in assessing prospective customers and clients. As such, securing business and personal credit reports are very essential in helping you assess the right clients that will honor their contractual obligations and be spared from the ones who are most likely to renege on their part.
Some of the information that you’ll be able to secure from your potential client’s credit report that will greatly improve your debt collection strategy, in the long run, are the following:
1. Fresh ASIC/Business Name Search;
2. Bankruptcy details;
3. Insolvency details;
4. ASIC current extract;
5. Summary of Partners/Directors of business relationships;
6. Past Credit Enquiries on all Partners/Directors;
7. Adverse information on all of the Partners/Directors; and
8. Default information on all of the Partners/Directors, among others.
These pieces of information are very important if your type of business accommodates credit arrangements for larger clients. The business credit report gives you a more thorough look at whether a client qualifies to receive the services you offer, including the perks and other privileges that come with your service.
2. Not Executing a Written Contract
This is, by far, one of the most common mistakes of every small business owner. Drafting documents, notarizing and executing them is part of doing business. In order to make every transaction transparent, smooth and straightforward, every owner of a business– whether big or small- should allocate proper time and effort in doing this.
Written contracts yield several benefits, including the fact that it binds both parties to honor all the contractual obligations they’ve provided therein. Your contract will also be your reference if any dispute arises during your business transaction, and it may serve as evidence to support unclaimed dues or in recovering fees that your clients may have already incurred against your business.
Indeed, executing a solid contract that entails all the stipulations that both parties have agreed upon is a bullet-proof way that will greatly help your debt collection easier. The written contract will not only make your terms and conditions binding between and among parties but it will likewise protect interests.
3. Not Hiring A Debt Collection Agency
Pile of uncollected debts has always been part of the equation of growing a business which if you don’t respond too quickly and prudently could mean financial losses for your business — which is not good for small business owners.
Getting professional help from a debt collection agency is one of the best strategies you can do in order to have a strong debt collection system in place, ensuring that your business is in its much stronger position. Hiring and/or consulting with a collection debt agency has its advantages, which include being able to do your normal duties without having to worry about uncollected dues from your clients.
Indeed, this strategy has already been tested and has shown to have yielded positive results while saving you time, efforts and money that you can invest to grow your business further. If you are a small business owner and you want to make sure that you have everything under control, do not think twice about seeking the professional help of an expert.
4. Not Managing Receivables Properly
Ensuring that you’re handling your receivables correctly is part of the crucial decisions you have to make for your business in order for it to survive. If you do not have sufficient time to handle this task, delegating it to someone else is a smart option; this is a viable way in order to recover unpaid invoices efficiently.
You can either choose between hiring an expert or appointing someone for that position. If you know that you cannot do it yourself due to your growing obligations and other demands by your company, it is highly advisable to take the former option.