3 Sure-Fire Remedies For Overdue Accounts

Bad debts are festering wounds in your business insidiously leeching both your time and your profits. And like any virulent disease there are three pillars of intervention which must work seamlessly together to not only eradicate the disease of bad debts but also prevent future re-infection.

Leave any one of these three levels of care out and you’ll remain both vulnerable to parasites and powerless to stop them.

Level 1 Debt Management: Immunization

Just as there are inoculations to prevent diseases taking root, there are powerful tools to boost your immunity against bad debts.

For total protection your business needs to be armed with all of the following instruments as well as the systems to implement them.

Conditions of Trade: Irrespective of how big or small your business, if you provide goods or services comprehensive Terms of Trade will protect you and your business from financial loss.

In essence Terms of Trade are a set of legally binding documents that detail the specific conditions under which you and your customers carry out business together. Now this involves more than just credit abuse. In all there are fifty-two acts of legislature which can strike you down. Mindful of these multiple risks your Terms of Trade must close-down each and every one of these potential pathways of infection.

Credit Checks: As they say… “An ounce of prevention is worth a pound of cure!” So before extending any form of credit to a new customer it’s critical that you examine them for credit worthiness. The fastest, cheapest and easiest way to do this is by being set-up to conduct online credit checks. However, to carry out credit checks your Terms of Trade must clearly authorize you to do so. If they don’t you’ll be in breach of the Privacy Act and in turn be liable to pay a $200,000 penalty.

Personal Property Securities Act: - For a measly $3, you can wield an enourmous amount of power over both your goods and you debtors. Yet most businesses remain clueless to the PPSR’s power as well as to it’s ease of use.

Bullet-Proof Documentation: Finally, to fully fortify your defenses against bad debts, depending on the nature of your business you need at least three of the following documents: Application for Credit; Quotation/Work Authorization; Quotation Variation; Job Completion; Personal & Corporate Guarantees; Authority to Supply Goods; and Agreement to Hire.

Preventive measures are without doubt the most neglected layer of protection and their absence dramatically undermines the effectiveness of the following two strategies. Conversely, with these tools in place you’ll possess the full power of the law to both prevent and recover bad debts.

Level 2 Debt Management: Home-Cures

As with minor infections, there are quick and easy remedies to heal the wounds of common bad debts. The best “home remedy” for recovering bad debts is a rapid-fire prescription of 3 potent pills.

Debt Pill 1: Debt Reminder Letter. Prescribe as soon as debt falls overdue.

Debt Pill 2: Debt Follow-Up Phone Call. Dispense if debtor does not respond to debt reminder letter after 7 days OR they default on repayment installment.

Debt Pill 3: Debt Final Demand Letter. Administered if debtor does not respond to follow-up call within a week OR they miss a repayment.

It’s of paramount importance that you stick-to this simple yet powerful three step formula. Under absolutely no circumstances should you dispense more than 1 debt reminder letter as doing so will not only demonstrate you accept slow payment, it will also dramatically reduce your chances of recovering your account in full.

Level 3 Debt Management: Transfer To ICU

Whilst Level 2 care will adequately clear-up routine unpaid accounts, there exist more virulent debtors who remain resistant to these basic remedies. These debtors are toxic and they need to be surgically resected out of your business. As such as soon as the final demand deadline passes without the debtor settling the account you should instantly refer that debtor to a crack surgical debt recovery team.

Now like any doctor, while they may all have comparable letters after their names, they don’t all possess comparable levels of skill. That’s why when selecting a debt collector to recover your accounts make sure that they posses every one of these skills…

1. They routinely handle disputed debts. Most agencies either refuse to touch such debts OR they’ll charge you a king’s ransom to chase them. Insist on agencies that routinely treat disputed at no additional fee.

2. They guarantee collection of your account. Beware: “No Collection = No Commission” is NOT a guarantee of collection. Instead it’s a worthless cop-out. Insist on guaranteed recovery where the collection agency actually shoulders the risk.

3. They don’t charge you or your debtor a cent of commission on money they recover in the first 30 days. Important: don’t ever touch a collection agency that insists on charging commissions on collections from day one on all debts.

Bottom Line: If you want to recover the maximum amount of your accounts quickly and affordably ensure you have all three levels of protection working seamlessly for you in your business.