5 Warning Signs That You Might Need Debt Collection For a Client Soon

Debt collection is a stressful job for businesses, and although there is no sure shot way to identify a customer who will default, some early signs will always help to cut down on bad debt in your books. Usually, when a client does not want to, or is not in a position to pay back the debt, there would be a pattern in his/her behavior, and identifying those patterns can help your business lower bad debt and potentially save you from huge headaches.

Below are the five most important warning signs that will help businesses identify and avoid the default:

 

  1. Acid-test Ratio – The banking and finance industry is well aware of the Acid–test ratio – also called the quick ratio. It is not often used in the case of individuals as it is in the case of companies who borrow on a regular basis. Acid-test ratio tells the ability of a particular entity to use its quick cash and assets to pay off the debt. Here is a video that explains exactly how it works:


    In case, the Acid-test ratio is less than one, it means they do not have the enough cash to pay off current debt. Of course this method requires that the company that you are dealing with gives you the information you need to perform the test, but it is a calculation that can be done quickly (and if they refuse to hand over the info you need that is another red flag that they might be in a bit of trouble).

  2. Disputes on Invoices or Changing Terms – At the time of assigning debt, your business and the customer agree to specific terms. However, if a customer who was fine with the terms and agreements before, now starts questioning the points in the agreement  then this is an early warning sign that something might go wrong.
  3. Unanswered Phone Calls – Everyone can get busy and ask you to call later. However, this gets beyond reasonable to the point of alarming when phone calls for the debt collection go unanswered on a regular basis. When the customer is not answering calls, a letter should be sent to the client immediately. Keep a digital copy for your records as well. After this if the client does not turn up or continues to avoid communication, you have perfectly reasonable grounds to send someone in person.
  4. Changing Business Patterns – If you notice changing patterns in your client’s business behaviour that doesn’t seem reasonably effected by your conduct, don’t hesitate in sending someone in person to try and understand the changes that the client made in their working methods, which may be reflected in their cash flow. It is not always necessary that such customers will default, as over time nature of business does change with expansion and acquisitions, and the same is reflected in the books of the company.
  5. Reducing Product Prices – Seasonal offers and discounts are usual things in business. However, if a client has started offering overly frequent discounts, or ‘everything must go’ type sales, then it’s definitely a cause for concern. There are possibilities that the business is running into losses and therefore reducing prices could just be a way to clear the inventory and realise costs. Another possibility is that the business might be looking to increase its customer base and is selling at a reduced price. Either way, the cash flow is affected, and business owners should make sure to enquire about any probable concerns, or ask a debt collector to assist in research and contact.

 

It is true that bad debt risk cannot be totally avoided, but following the above signs will surely help to reduce risk. Also, lenders must remember that debt collection can be more of an art than science at times as there are no fixed rules for identifying the default. So, experience in identifying patterns, asking the right questions at the right time, and doing the right amount of research all while abiding by lawful guidelines and respecting that some clients will have certain difficult periods will go a long way in saving you from bad debts and broken relations.

Understanding Credit Management

The importance, long term benefits, requirements, and procedures behind a robust credit management system

If you’re a small-to-medium business owner that wants to be as successful as possible, understanding credit management is a great way to generate genuine wins. Its use in your company will assist tremendously in ensuring that late-payments and non-payments by customers are avoided or prevented entirely. Here’s all that you need to know about credit management and the creation process involved with this function.

 

Importance of Credit Management

In today’s market it’s very difficult to succeed without a robust business credit management platform, especially when you’re just getting started. These systems allow you to make sure that the deals you make and the products you sell are paid for in a timely fashion. To underline the importance of credit management, you should be aware of the fact that more than 50 percent of all business bankruptcies are due in large part to faulty credit management.

 

Many businesses believe that simply chasing up late payments is something they can look after themselves. But not only does it take up your time, being reactive does not address the core issues that are leading to late payments.

 

The only way to avoid these issues impacting your business is by taking the necessary steps so these issues are detected as early as possible and any issues are resolved efficiently.  If you don’t search for a fix to the reason why the payment didn’t occur, it will continue to happen and you will lose out on both money and customers.

 

The procedures involved in credit management extend to identifying the credit rating of the customer ahead of time, monitoring customers for any potential credit risks, identifying late payments before they take place, preventing debt, detecting any complaints and responding to them in a timely fashion, and maintaining customer relations. If you take these facets of business credit management and work them into the fabric of your company, you’ll heighten your chances of success.

 

Benefits of Credit Management

Credit management allows your business to be more flexible in its dealings. One of the most direct aspects of your business you can affect is your Days Sales Outstanding (DSO). DSO is the average number of days a business takes to collect revenue after making a sale. Reduction of DSO allows a business to improve cash flow and make decision on the handling of funds and assets in a more fluid and predictable way. It has been shown that when credit management is implemented properly, DSO can be reduced by up to half.

 

Integrating credit management into your company will lead to improved cash flow and a higher amount of available liquidity, assisting greatly.

 

Finally, a less tangible benefit but certainly not inconsequential is the fact that your reputation and the image of your business will be positive. You will be seen as a reliable person to deal with and respected for your efficiency.

 

Creation of Procedure

The creation of a good credit management system can be done by limiting the tasks to two specific procedures. The first of these procedures involves the act of determining the strategy that you’re going to use. You’ll need to decide which customers you’re going to accept and which conditions you’ll set forth for these customers. Out of the customers who are accepted, you’ll also need to make a decision on which customers should be monitored. If the risks you identify for anyone who has been monitored come to fruition you’ll have to decide whether or not they will continue to be accepted as a customer and when the exit period will take place.

 

Once the strategy has been determined, it’s time to prepare all of the procedures you’ll use within the credit management function. There are some questions that will need to be asked about your business as it pertains to these procedures to make sure that they are as effective as possible. For instance, what is your invoicing system like? Are you going to make use of in-house management or will you outsource these tasks? When should you remind a customer by telephone that a payment is due? Should you also send a reminder through the mail? When should you get a debt collector agency involved? When are legal proceedings brought to the forefront? What will each of your employees do as it pertains to credit management? You must answer each of these questions and more so that you can be confident any credit management system you implement is operating smoothly.

 

Once all of these processes are laid out at once the benefits of third party credit management support start to become more obvious.

 

Understanding Required Systems For Your Business

There are a wide array of systems you can use when setting up your credit management procedures. Some of these systems will effectively protect any data you upload while others will make the process a smoother one. For instance, you’re going to want to have some form of acceptance system to utilize in order to accept certain customers and deny others. This process can be done manually or automatically depending on the criteria you wish to use when accepting customers.

 

You’ll also need a monitoring system to keep checks on certain customers who run a risk of not paying. These systems offer practically continuous analysis into both your customers and suppliers. A bookkeeping system is essential to record of all payables and receivables. This allows you to better identify cash flow and where any risk may be coming from. When a customer buys something from you, it’s important that you provide them with a proper invoice. There are many manual or automatic invoicing systems that can be integrated into your business. You should also consider a customer relationship management system that will store any complaints that are lodged.

 

As you can see, credit management systems can be complex and require experience and diligence to gain long term results that we have discovered can reshape a business cash flow and longevity entirely. If you want to talk more about credit management support, contact us today to talk to one of our credit management professionals.

 

 

The cost of Bad Debts

Unfair_Debt_Collection_Credit_Reporting

With credit comes risk. It’s just a fact of doing business.

Practically every business does a certain proportion of their transactions on a credit basis – it’s a necessity in many situations, and most credit transactions go just fine. Still, there’s going to be a percentage of customers that might have cash flow problems of their own and can’t or won’t pay off accounts in a timely fashion. That’s where your company’s accounts receivable department comes in.

It’s important to keep an even-handed policy toward receivables. While it’s easy to let older customers who may have been paying on time for years slide a little, it’s vital to keep close tabs on all receivables. Treat all customers as if they were new, and if an older customer is slow to pay on accounts, follow up with them and see if a different plan needs to be worked out. If the debt is still not paid, it might be time to consider retaining a collection agency, consider this:

If your business’s profit margin is at 20 percent and you’re stuck with a bad debt of $5,000, it will cost your business $25,000 in new revenue to recoup that $5,000 debt. If your margin is ten percent, it’ll cost $50,000 in new revenue to recoup the $5,000. Considering how much new business will have to be generated to recoup a bad debt, it’s important to pursue collection and use every measure possible to recover that debt until all options are exhausted.

Why Use a Debt Recovery Agent?

why use a debt recovery agent

Although you have good credit management policies in place, it is likely that you will have to deal with bad debts, our aim is to collect full payment as quickly as possible in a professional manner whilst maintaining your relationship with your customer/client.

Proper Management of your debtors will help you get paid faster and prevent bad debts and assist in maintaining a healthy cash flow. We will make every effort to collect your debts without commencing proceedings through the court, however this may be necessary, we have a cost effective scales of fees for this avenue.

Network Debt Recovery Services pride ourselves on communication with our clients, keeping them informed of the collection process at all times.

Top 5 Debt Collection Tips

debt collection tips

Outstanding accounts have always been part of every business and is becoming more so now in today’s economic climate, and the older the debt the harder it is to collect.

1. Have clear trading terms and follow them

2. Have signed credit applications from all customers

3. Commence recovery efforts immediately an account is approaching your trading terms

4. Follow up on a regular basis

5. Contact a collection agency

How to Stay on Top of your Debtors

stay on top of debtors

Staying on top of your debt collection is absolutely vital for your business. Proper management of your debtors will help you get paid faster and prevent bad debts.

TERMS OF TRADE

Ensure that you advise all clients/customers your terms of trade before you provide goods or

services, for example your invoice is to be paid in 7, 14, 30 days and make sure this is on your invoice

and/or credit application.

FOLLOW UP INVOICES IMMEDIATELY

When an invoice becomes overdue follow them up immediately – the sooner you follow up the

greater the chance of payment.

STAY ON THE FOREFRONT OF THE CUSTOMER

Customers with cash flow problems will be deciding who to pay first and will most likely pay the one

who is pushing the hardest.

CONSIDER PAYMENT PLANS

You may have a long standing customer who suddenly has cash flow problems, you could consider a

payment plan with them to save ruining the relationship until they overcome their hardship.

ENGAGE A DEBT COLLECTION AGENCY

If you require debt collection services in Brisbane or around Queensland then contact us for assistance in the recovery of your delinquent accounts.

©2017 Network Debt Recovery | Privacy Policy | Terms and Conditions