I have been asked by a Dynamic Business reader (thanks to @djcoombes74) to discuss the costs associated with debt recovery. The collection of debt is an important topic for businesses and an area that is often poorly managed.
Slow paying customers and bad debts continue to be a big problem for small business, particularly over the last two years as the tough business climate put pressure on cash flows and resulted in companies generally taking longer to pay bills.
The process of debt collection, especially if not managed properly, can take up a big chunk of valuable time and resources that could be better spent concentrating on growing the business.
Most small businesses don’t have a dedicated resource like a credit controller or accounts receivables officer, which means the onerous task of collecting money, is often left to the side rather than being a priority for the business.
The normal costs associated with debt recovery that nearly every business experiences at some stage, is when an account becomes overdue and reminder invoices need to be sent, follow up phone calls made and the finance team having to keep record of the status of the account if payment has not been received.
Where costs start to escalate is when your finance team dedicates hours and time on the collection task to no avail resulting in the business owner becoming involved in an effort to put more pressure on the debtor, thereby taking the owner away from running the business.
It may be that the business will need to engage either a lawyer or collection agency to hopefully resolve the situation. Court cases aren’t that uncommon and can be costly, particularly if you aren’t successful.
Late payments and bad debt have an immediate impact a business’ cash flow and if not managed adequately a business can quickly run into financial trouble and have difficulties paying their own liabilities.
The extreme costs of ongoing debt recovery problems can be:
I find many businesses experience problems with debt collection mainly because they don’t have the right processes and controls in place and also adopt a cautious approach to communication with their clients for payment.
What you can do to improve your debt recovery efforts:
This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions. Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.