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.