Key considerations for controlling business debtors

Effectively managing your debtors is important because it can improve cash flow and help your business continue to grow successfully.

The information below can help make the task of controlling business debtors much easier.

We recommend you seek legal advice if you have any concerns.

Have terms of trade in place before extending credit and know who is behind the business

Make sure your terms of trade are in writing, and are specific to your business. It’s surprising how many businesses still supply goods and services by informal arrangements, or have generic terms of trade that are not appropriate. Having terms of trade in writing is an effective way of minimising and preventing bad debts arising.

You should also make sure that new customers accept your terms of trade, for example by returning a signed copy of your terms of trade to you.

It is useful to complete thorough credit history and business reference checks before offering credit to new customers. Be upfront about your terms of trade and credit limits and put these in writing.

If you are unsure as to whether your terms of trade are exhaustive or appropriate, we recommend you seek legal advice from one of our experienced lawyers.

Know who owes the money – do an ASIC search

It is vital to perform background checks on potential customers before commencing a business relationship with them.

The only way to know whether a business you want to deal with is in administration, liquidation or deregistered is to do a search of ASIC’s records. This can help you to weed out any customers that do not have the ability to pay you.

Educate your credit control team

It is vital that all staff in the credit control team are on the same page when it comes to your business’ credit control policy and procedures. We recommend you have regular meetings to go through credit control policies and what changes need to be made, if any.

It is important to ensure that your staff understand your terms of trade. Taking some time out to help your staff understand your terms of trade can prevent unnecessary debt chasing down the track.

Keep notes of phone calls, etc. when chasing money

If you find yourself chasing money from a debtor, it is critical to keep a record of phone calls, emails, letters of demand and other documentation supporting your claim. It will also make it easier to keep track of your dispute.

Conclusion

The key to controlling business debtors is prevention. Having clearly written and appropriate terms of trade, and knowing who your customer is (and their credit history), minimises the risk of you having to chase your customers for money in the future.

Training and educating your credit control staff is also vital to ensure they understand the business’ trading procedures and policies and are effective in carrying out these procedures and policies.

If you or someone you know wants more information or needs help or advice, please contact us.

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