Every business outfit in Australia has its standard terms and conditions for credit. This document is similar to a sales contract, but includes provisions for when the buyer fails to pay his or her business debts. In essence, there are seven ways that businesses can strengthen their terms and conditions for a smoother business debt recovery process.
Clearly Identify the Parties Involved in a Business Transaction
When giving credit to a customer, you should state whether it’s a partnership or a sole proprietorship. Get the real names of the persons who entered into the partnership agreement or the full name of the sole proprietor. Find out if the business or company exists by searching for its Australian Company Number (ACN) at the Australian Securities and Investment Commission (ASIC) website. You can also search for its Australian Business Number (ABN) at the Australian Tax Office personally or through the ABN Lookup page (abr.business.gov.au) of the Australian Business Registrar.
Seek Guarantee of Payment When the Customer is a Company
To be sure that your business client pays, do some investigative research into the company’s solvency. A business whose history shows a continual struggle to stay afloat will not be a good debtor to you. Nevertheless, if the company looks stable, you’ll still have to ask its owners or Board of Directors to provide you with a signed guarantee. In case the payments get delayed, the guarantors are responsible for paying the dues during the business debt collection process. Also, check for other valuable assets that the company or its guarantor probably owns; lands or other business outfits can serve as collateral in case the company defaults on its financial obligations to you.
Let Your Outstanding Receivables Earn Interest for Your Own Good
Accruing a yearly interest on unpaid debts is part of a good debt collection policy. If it were kept in your bank account, then you’d have earned the same amount of interest on it. As it is being used by other people, you’ll have to calculate at most 10 to 15 percent interest per annum over the principal amount owed to you. That seems like a reasonable rate for overdue accounts.
Define Who Retains the Title Over the Existing Goods
If you’re a supplier of goods to your business client, then you should stipulate an arrangement on who owns the goods during the time when the customer hasn’t paid the amount due in full. As the supplier, you should be able to claim ownership over the remaining inventory in case your customer suddenly declares bankruptcy. Since October 2011, the Personal Properties Securities Act 2009 requires businesses to register title rights, leases, and equipment hire arrangements as securities.
Include a Provision to Stop Supplying Products or Services to the Customer
Simply calling a halt to provide raw materials, manufactured goods, or commercial services to a non-paying customer may cause too much trouble, not only to your client, but also to their individual customers. The public outrage is enough reason to tread carefully over this section. This is especially true for suppliers to restaurants and grocery stores where ongoing arrangements must be fulfilled to keep the consumers happy.
The best thing that suppliers and merchants can do, in this case, is to agree on a specific period and course of action. Let’s say, your customer’s failure to pay up the full amount within two weeks after the debt’s due date shall result to a reduction of supplies by half in the first week and a complete stop to all supplies on the second week. This way, you gradually pull out the plug to the flow of goods while giving your customer enough time to pay what is due.
Recover Legal Costs from Suing Your Errant Debtors
Most commercial debt collection agencies, like JMA Credit Solutions, assure their clients that they’ll do everything they can not to let the situation get out of hand and bring the debtors to justice. However, it’s unavoidable that you may have to sue one or two of your errant debtors to recover your investments. This means you’ll be spending more on lawyer’s fees and filing those cases. Include a stipulation that the customers found guilty of defaulting on their financial obligations must also pay for your legal expenses.
Specify the Jurisdiction of Your Claims Against a Non-Paying Customer
This last section is most useful for business that operates online and deals with customers from all over the world. Specify that whatever legal action you decide to take shall commence in the courts of your preferred territory.
These seven steps must be implemented before your company even starts doing business with clients. Make sure you already established strong measures in your debt collection management policies. These measures may include hiring a third-party agency, such as JMA Credit, to recover bad debts for you. This saves you time and energy in collecting old unpaid debts and lets you focus on current ones.