When the Accounts Receivable Balance is slowly growing, it’s time to look at how to reduce those unpaid accounts.
Feeling tense? Are the ‘unpaid invoice’ balances in your business books slowly growing each month?
Reality is, older unpaid invoices due for jobs completed for products or services done – are essentially a ‘theft of funds’ from your business. The concept is no different to the act of those who walk into a store, help themselves to goods and leave without intent to pay. Your business has provided the product or a service and the payee will not settle their account within an agreed time-frame. This creates stress in several ways:
Stress from …. impact on your mindset over the issue of having to deal with slow or non-payers
Stress from …. the wasted time in chasing and attempting to retrieve YOUR money
Stress from…. impact on the lowered bank balance without due funds…
Stress from …. from an inability to settle due bills, if the business has insufficient cash reserves.
Let’s get pro-active. Review options to reduce those long-standing unpaid accounts
Review your business payment options. Can you bill for some products or services prior to delivery? Ask for a deposit? Other options can be to request part payment upfront before accepting the order and doing progress payments. If the project or service has a high value, progress payments are a good option.
Send invoices out as soon as job/goods are supplied. Don’t wait for the end of the month to do your invoices. Clients may have the ability to settle the account immediately on receipt of your invoice. (Ensure your invoices are correctly addressed to the company’s legal trading name and include address too – this is important especially if debts need to be passed to a collection service.)
Seven Day Payment terms: In these days of online/credit card payments, there is a growing trend of many businesses moving to ‘seven-day payment’ terms instead of monthly payments. Advise your clients, and print the terms on your invoices. For large contracts or ongoing supply contracts, businesses may approach to renegotiate those payment terms but do be clear on agreed payment terms, including any default charges. Best to written confirmations if this happens.
Payment Options: Make it easy. Many businesses do online banking today. Have the bank account clearly printed on invoices you send – this helps encourage early payment. If your business accepts credit cards – state this on invoice too.
(Did you know Xero offers a super feature on emailed invoices to clients to encourage quick payment. Clients can click on your invoice and select payment options by your business. Contact us at Do The Sums Bookkeeping and More for more information. Ask us about Partner deals for Xero subscriptions which can offer more savings.
Action Stations – still no payment …. Let’s fire up the reminders now!
Still not paid by the due date? A day or two past the due date and no payment are showing – send a reminder email to your debtor.
If still no response – email another a week later, accompany it with a friendly letter of notice that the account is overdue – and if applicable, the account will become liable for interest charge from ‘x’ date.
Your Terms of Trade. You do have them, right? Because should you plan to charge any late penalty costs on unpaid debts after a set time, or pass on any debt recovery costs, be aware this notice must have been clearly written in your terms of trade. (See our blog about trade terms ⇒ Terms of Trade)
Still No Funds? At this point, you need to review your options. Emailed invoice copies? (Remember to also send copies by registered post to their legal address, too).
Use the phone: Call to the business owner or senior manager, and ask them if there is a ‘problem’ and request immediate payment of the account. No need to be aggressive, just be firm and friendly and fix on a set timeframe.
Another option is to offer the client opportunity to repay the debt in instalments over time. (Or the client may ask.) This may be an option where the client usually has a good track record, and you are willing to retain the client’s services. Once a resolution is agreed on, send an email confirming the reviewed payment date(s). This creates a track record, should you still need to pursue debt collection later.
There have been a few known cases of a business not responding because of a major event impacting the owner e.g. severe illness, or even it can be due to an overlooked action of someone not covering a vacant role e.g. staff member leaving so emails are not being dealt with. This is why sending late bills by post may be useful.
No Funds still? … Final Options
Option One: Write off the debt in full, as IRD allow it as a deductible business expense, plus reclaim any GST paid if your business processes GST on an Invoice basis.
Option Two: Contract a Debt Collection Agency. They will require information about the client’s, address and processes you’ve undertaken. So it is useful to hold a record of the actions taken to retrieve payment.
Option Three: Your business may opt to pursue the debt through legal means. Your lawyer should be able to advise on this process, and it can be expensive.
Should the debtor dispute the debt is owed to your business or even the amount payable, and they must advise this in writing to your business, you cannot pursue actions in recovering the outstanding account. You will need to instead review legal actions such as going through the Disputes Tribunal process, or via the District Court. Check on New Zealand laws such as the Fair Trading Act or Consumer Guarantees Act, as consumers may have rights your business cannot overrule.
We hope the information above was helpful. If you are struggling with bookkeeping duties, please do contact us at Do The Sums Book Keeping and More. We may be able to help you manage your bookkeeping routines better, including managing your Accounts Receivable balances. Or we can review options of taking over these duties for your business. Either way – contact us today.
Call us on 027 379 0992 and make a time to chat. Take that weight off your shoulders.