Bad debts are a festering wound in your business insidiously leeching both your time and your profits. And like any infectious disease there are three key levels of intervention which must work seamlessly together to not only eradicate the disease of bad debts but also prevent it from re-infecting your business in future.
Leave any one of these three levels of management out and you'll remain both vulnerable to parasites and powerless to stop them.
Level 1 Debt Management: Immunization
Just as there are vaccines to prevent diseases taking root, there are powerful tools to boost your defenses against bad debts. For total protection your business needs to be armed with all of the following instruments as well as systems to use them...
Terms of Trade - No matter how big or small your business, if you supply goods or services comprehensive Terms and Conditions of Trade will protect you and your business from financial loss. In essence Terms of Trade is a legally binding document that sets out the essential conditions under which you and your customers carry out business together.
It's important to understand that this involves more than just credit abuse. There are 52 acts of legislature which can be potentially abused. Accordingly your Terms of Trade must close-down each and every one of these potential pathways of infection.
Online Credit Checking - In line with the adage of "an ounce of prevention is worth a pound of cure," before extending any form of credit to a new customer it's critical that you screen them for credit worthiness. The fastest, cheapest and easiest way to do this is by being set-up to conduct online credit checks on the spot. 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 Register - 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 how easy it is to use it.
Comprehensive 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 Authorisation; Quotation Variation; Job Completion; Personal & Corporate Guarantees; Authority to Supply Goods; and Agreement to Hire.
Prevention is without doubt the most neglected layer of protection and it's absence dramatically undermines the effectiveness of the following two defenses. Conversely, having these tools in place arms you with the full power of the law to both prevent and recover bad debts quickly and affordably.
Level 2 Debt Management: Home Remedies
As with minor infections, there are quick and easy remedies to heal the wounds of common bad debts. The best "home-cure" for recovering bad debts is a rapid-fire prescription of 3 potent antibiotics.
Debt Antibiotic 1: Debt Reminder Letter. Prescribed as soon as debt falls overdue.
Debt Antibiotic 2: Debt Follow-Up Phone Call. Dispensed if debtor does not respond to reminder letter after 7 days OR they default on repayment installment.
Debt Antibiotic 3: Debt Final Demand Letter. Administered if debtor does not respond to follow-up call within 7 days OR they default on repayment installment.
It's critically important that you adhere to this simple yet powerful three step formula. Under absolutely NO circumstances should you dispense more than 1 reminder letter as doing so will not only encourage slow payment, it will also dramatically reduce your chances of recovering your account in full.
Level 3 Debt Management: Transfer To Intensive Care Unit
Whilst Level 2 will adequately clear-up conventional unpaid accounts, there exist more virulent debtors who remain resistant to these home remedies. These debtors are toxic and they need to be cut-out of your business ruthlessly.
To this end as soon as the final demand deadline passes without the debtor settling the account you should instantly refer the debt to a crack surgical debt recovery team.
Now like any health professional, while they may all have comparable letters after their names, they don't all possess comparable levels of skill. To this end, when selecting a debt collection agency to recover your accounts be sure that they posses all threea of these skills...
They are equipped to handle disputed debts. Most agencies will either refuse to touch such debts OR they'll charge you a small fortune to chase them. Insist on agencies that routinely treat disputed at no additional expense.
They guarantee collection of your debt. Note: "No Collection = No Commission" is NOT a guarantee of collection. Rather it is a worthless cop-out. Insist on guaranteed recovery where the collection agency actually shoulders the risk.
They provide a 30 day window where they don't charge you or your debtor a cent of commission on money collected during this period.
Important: never deal with a collection agency that insists on charging commissions on collections from day one on all debts.
In short, if you want to recover the maximum amount of your accounts quickly and affordably you simply must have all three levels of protection working seamlessly for you in your business.
Publisher of the world's only free online multi-media debt recovery training course for business owners Dr Angelo Ioanides (a.k.a. The Debt Doctor) is a leading authority in accelerating and magnifying business cash-flows. If you'd like to possess the tools and knowledge to recover your debts in-house faster, more affordably and with dramatically less stress than they've ever experienced be sure to visit The Debt Doctor's nzdebtcollection.co.nz blog. To learn more about in-house prevention and recovery as well as to receive free debt reminder and final demand letters simply visit The Debt Doctor's nzdebtcollection.co.nz/free-online-debt-collection-training free debt collection letters blog posts.
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