‘Money makes the world go round’, as they say. Which means if it stops flowing your business’ way, there’s a good chance your world could come to a standstill.

Someone else’s bad money management can become your problem too if you don’t put precautionary measures in place. But you need to do so properly – and minimise  putting anyone offside.

By implementing the following five steps, you can improve trust in your clients, customers and suppliers when it comes to payments.

1.Credit checks

Before teaming up with a client, it is important to perform a credit check to determine their ability to pay off their debt to you.

It’s common knowledge that you can request your own personal credit report. What’s less known, however, is that Australian organisations can find out information relating to a company or individual’s credit history.

This can be purchased via Equifax’s Business Credit Express or Illion Express, both of which boast large databases of real-time Australian consumer and business information.

You can also download the ASIC Business Checks app, which takes you through some practical and easy checks to verify information about businesses you’re currently dealing with, or potential business partners.You can also check the ABN Lookup run by the ATO.

2. Invoice properly

The Australian government website is a great source of information when it comes to ensuring you’re sending out invoices correctly.

This includes how to create an invoice, what you need to include, the different types of invoices and other information such as when you need to send it to the client.

It’s also important that you put in place a robust system to track what invoices have been paid, because research shows SMEs across Australia are collectively owed $26 billion, and nearly three-quarters of all business invoices are paid late.

If you  sell goods on a credit basis, the fact of the matter is you’re at risk of a bad debt or non-payment by customers. This can disrupt your cash flow and leave you out of pocket.

As such, trade credit insurance is a great way  to protect your income and business assets against potential customer insolvency.

3. Debt recovery

Every now and then a tardy payment will escalate into a “debt recovery” situation.

Rest assured there are still a number of steps you can take the resolve these issues.

The Australian Government’s Business website advises that first you review the terms of the contract for payment conditions and debt recovery options.

Hopefully you have had a recent legal review of your terms of trade, which might include a retention of title clause until you have been paid. You can even consider including a charging clause over all or some of the customer’s assets in your terms of trade, which you can then register on the Personal Property Securities Register so you become a secured creditor. You might want to get personal guarantees from directors of your corporate customers in case the company’s net assets are small.

You should then send an initial reminder and several follow ups – the Victorian Business website offers a template for each step, ranging from a friendly reminder to a formal letter of demand.

If you still haven’t been paid, consider using a debt collection agency or service as a last resort. Just note that if you use this tactic you do run the risk of ruining your relationship with your client.

The Australian Small Business and Family Enterprise Ombudsman also has an online referral  Dispute Support tool which can help you find the most appropriate low cost dispute resolution service to help you resolve the matter.

You should then send an initial reminder and several follow ups – the Victorian Business website offers a template for each step, ranging from a friendly reminder to a formal letter of demand.

If you still haven’t been paid, consider using a debt collection agency or service as a last resort. Just note that if you use this tactic you do run the risk of ruining your relationship with your client.

The Australian Small Business and Family Enterprise Ombudsman also has an online referral Dispute Support tool which can help you find the most appropriate low cost dispute resolution service to help you resolve the matter.

There’s been a recent spate of incidents where scammers impersonate businesses and ask ‘clients’ to pay a recent invoice into a new bank account, which turns out to be the scammer’s account.

The Australian Competition and Consumer Commission’s Scamwatch website details the case of a business that made an initial loss of $17,000 before the flow on effects – supply delays, missed orders and broken contractual obligations – saw the cost balloon to more than $30,000.

So to help ensure you have good relations with your clients, that they’re aware of such scams and that you’d never ask them to change your payment details,  tell them  you would only do so if you personally gave  clear and robust directives both in writing and over the phone.

An increasing number of these scams are being perpetrated through digital channels, which is why you need to have the right cyber insurance, as businesses come to rely more and more on technology to get things done.

5. Insurance options

Of course, just like everything in life, you can take every precaution possible and still come unstuck.

As ASIC reports, inadequate cash flow was responsible for almost half of all business insolvencies in 2017/18.

Fortunately for most businesses, insurance can provide cover against the kind of bad business debts that could see your business grind to a halt.

As mentioned, one solution is Trade Credit Insurance, which can help ensure your business can continue trading even if clients and/or suppliers don’t pay  you .

The right Business Insurance and Business Interruption Insurance for your business  is another way to help guard against potentially devastating risks, and help get you back on your feet in the event of disaster.

For more information on insurance solutions, talk to your Steadfast broker.

 

Well Covered
(Steadfast)