Careful management of bad debts is important to your business for cash flow and customer management
It’s important to have processes in place that help you to invoice customers, track payments, deal with non-payment, and recover debt. However, your processes should consider the importance of maintaining existing relationships and your reputation in your business networks.
If you’re attempting to recover a debt, you may wish to start by contacting your customer as soon as the invoice is overdue and remind them of the due payment. If there’s a valid reason for the late payment, you may consider giving an extension.
If repayment doesn’t occur within this timeframe, you can send a letter of demand by registered post. Keep a copy of the letter and the postal details as evidence if you need to make a claim in court.
If these methods are unsuccessful you may wish to hire a debt collector, who will charge a fee to pursue the debt on your behalf.
If the debt remains unpaid you may need to take legal action. However, you should balance the cost (in time and resources) in pursuing court action against the value of the debt and the likelihood of your claim being successful.
The Australian Competition and Consumer Commission has more information about recovering a debt.
If you’re in the building and construction industry, the Small Business Commissioner can help you resolve a payment dispute under the Building and Construction Industry Security of Payment Act 2009. Visit the Small Business Commissioner website or call 1800 072 722.