COVID-19: How to manage financial exposure and debtors in distress during difficult times.
Australia is facing a health crisis and an economic crisis due to COVID-19. Individuals and businesses will struggle to pay their debts causing ripple effects on other businesses, culminating in a wave of significant financial distress for the wider economy.
Although there will be many genuinely under financial distress as a result of COVID-19, there will also be those who will seek to use COVID-19 as an excuse to defer payment of their debts, or to avoid payment altogether. Businesses managing their own cash flows will need to make an assessment as to which of their debtors are genuinely in need of indulgences and which may be taking advantage of this crisis.
In addition, the Australian Government has introduced significant changes to the bankruptcy and corporate insolvency regimes, effective from 25 March 2020 for a period of six months. While these changes provide substantial relief for debtors in the current climate, they are also likely to cause delays in creditors seeking to recover debts owing to them.
In this climate it’s critical for businesses to review their terms of trade and how they manage their debtors. Our team at Highview has recently done this for our own business, and we could not stress enough the importance of other businesses doing so too.
First things first – ensure your Debtor Policy and payment terms are up to date, clear and well communicated. Here’s some tips on how you can do this.
8 smart ways to manage your debtors
Wouldn’t it be wonderful if customers paid on time, every time? Of course! But you’re unlikely to get paid as quickly as you’d like unless you focus on making that happen. There are some things you can do right now to manage your debtors better. Good debtor policies and procedures, the right tools and great invoices can pay real dividends.
1. Consider your payment terms
There’s no single solution for payment terms; it depends on your business, your product or service, and your customers. But 30-day invoices are almost a thing of the past. Consider whether any of these terms would suit your business:
7, 10 or 14 days – Don’t even suggest that it’s ok to wait a month! 30-day invoices tend to go in the pile for “next month”, which probably means the end of next month. That’s how “30” becomes 60. Also, chose who you offer certain terms to carefully! There are helpful solutions such as CreditorWatch (https://creditorwatch.com.au/) that you can sign up with, to better understand your debtors!
Payment-on-delivery (POD) or at time of service – If not for all customers, then perhaps at least for those with a tendency for slow payment.
Get paid before starting – Request a deposit or part-payment at the time an order is made, or when a job starts.
Get paid progressively – Ask for progressive payments over the course of a longer job. Your customers will this arrangement as it helps them manage their own cash flow – win/win!
Encourage timeliness – Offer a discount for early payment, or charge interest for late payments.
2. State payment terms upfront
Don’t hide your terms in fine print! Getting paid will be easiest if everyone knows the terms from the start. Make sure that payment terms are clear on your Quotes / Contracts / Invoices. Be willing to openly discuss your terms with potential customers. Don’t be afraid to bring it up, they will likely be thankful to know where they stand.
3. Get invoice details right
You can’t get paid if the invoice doesn’t get to the right person, with the right information.
Check email addresses are correct (or postal if you still use snail-mail … but that’s another conversation we need to have …). Communicate with the right person – the person who pays the bills. And, find out what will make your customers’ lives easier and include the information they need to make paying easy (i.e. correct bank details & ability to pay online 24//7)
4. Invoice promptly
Send invoices promptly after you’ve finished the work or provided the goods. What are you waiting for?
5. Provide timely reminders
Regular reminders are more effective (and less stressful) than final demands.
- Keep your reminders friendly but firm.
- Have a system for regular follow-up.
- Make sure your customer knows exactly who in your business they can talk to with any concerns.
- If you haven’t heard back or received payment after the first reminder, don’t be scared to send a follow up text message, or pick up the phone. Your customer may not have received your email (with the right software you’ll already know if that’s the case), or they may simply need to check some details but haven’t put it at the top of their to-do list.
- Don’t dread these calls – a quick chat might be all that’s needed to get the payment heading your way.
6. Make it easy for people to pay you
- Make payment options clear on your invoices.
- Offer a variety of payment options suitable to your customer base (e.g. cash, cards, direct deposit, BPay, payment plan, online, or in person).
- Use technology to make payment easy. Online software like Xero lets your customers simply click a payment link on their invoice to make direct, secure payments.
- Be ready to take payment over the phone when and if you need to make a follow up call.
7. Make debtor management easy with the right tools
You’re busy right? The right tools can make managing cash flow much easier. And if you spend less time chasing payments, you’re more likely to keep on top of things.
- Choose software that automates the process, e.g. turning quotes into jobs, turning jobs into invoices, sending automated reminders, syncing with customer details.
- But make sure your software allows you to tailor the details for a personal approach.
- Minimise data input by choosing software that syncs with your bank accounts. This means you always see up-to- date information.
- Choose software that makes it easy to see what’s paid and what’s not. A good dashboard will tell you at a glance who owes you money and how much.
- Your customers’ details should be integrated to your invoicing software. Then they’re only a click away from the invoice information so it’s no effort to re-email or phone the late payer.
- Choose software that tells you whether an invoice has been viewed by your customer (this can be handy for cutting through excuses!)
8. Keep calm
Don’t let things become emotional or personal. Deal with bad debts legally, ethically and calmly and don’t be afraid to ask your business adviser for guidance or assistance. It’s also important to record communications from the start so your recollection remains clear throughout. Records will also help if you get to the stage of formal dispute resolution.
By dealing with your debtors regularly and methodically, using tools designed to make your life easier, and seeking advice to help you do things better, you will get better at managing your debtors.
If you have serious concerns about your debtors, legal advice may be required. Our team at Highview can refer you to a reputable law firm that we know and trust, so please contact your local office and chat with your Accountant today.
We’re here to help.
Cranbourne: 03 5990 1000
Mornington: 03 5977 2100
Prahran: 03 9529 1566
Ringwood: 03 8899 9797
Source: references from https://www.accc.gov.au/