Be Proactive: Use These Strategies to Avoid Having Debtors

The Probe Group 1aGood financial health is the lifeblood of any business. A healthy cash flow is a great indicator of the wellbeing of your business, but sometimes this can be interrupted by various factors. The most common factor is debtors, and the subsequent risk of bad debts.

Many business owners have a very real and valid fear of debtors. This is certainly not unfounded, but the old adage “prevention is better than a cure” rings true in this case.

The more pre-emptive steps you take to avoid having debtors, the better your business’ cash flow will be, and the more relaxed and focused you can be on running your business.

Here we will outline a few tips to help you debtor-proof your business.

Know your clients

Before engaging in a business relationship with a client or customer, you should take the necessary steps to do the relevant reference checks. This will help to ensure they are reliable and solvent, particularly if you are offering a credit account.

Do your clients know you?

Your clients should have a thorough understanding of you and your business, including all pricing, inclusions or exclusions, cancellation policies, and any other relevant information. Clarity and understanding by both parties is the key to a healthy business relationship, and minimises the risk of any surprises.

It’s best to be upfront

Ideally, being paid upfront is the best scenario but this is not always possible, especially for service based businesses. Where possible, see if this is a valid option for you and your client.

Agree first

A formal agreement is an important step when establishing a business relationship. Never rely on a verbal understanding to form the basis of your dealings. A signed document protects all parties, and ensures the relationship is clear. This is not necessarily always a trust issue, but a prudent step so that both parties have a reference guide if ever needed. Your agreement may evolve over time but it is important to at least start with a foundation.

Encourage questions, as there will inevitably be some clarification required and doing this at the start of a relationship will save time and put everyone at ease.

Invoice on time, every time

Ensuring you are consistent with your invoices can lead to the formation of positive payment habits by clients. The sooner your client receives your invoices, the sooner they can think about payment.

Using an automated system to send and track invoices is often a worthwhile investment, not only from a time saving perspective but also from a consistency point of view.

Be accurate

It is crucial that your invoices are accurate and clear so as to alleviate any potential confusion by the client or their accounts team. Be clear and concise about how much is owed, when it is due, and the required method of payment.

Set your terms

Payment terms don’t necessarily have to be standardised at 30 days. Think about the type of business you are in, your cash flow requirements, and your systems. If your payment terms are 30 days and a client doesn’t pay, you’ll only be able to begin following them up after a month has passed. When payment is finally made, it may have already had real impacts on your cash flow and the health of your business.

For this reason, many businesses aim for a 7 or 14 day term to allow quick payment cycles and ensure the flow of revenue to the business. In fact, depending on the business, some clients even pay on the day of invoicing.

Manage the relationship

Being proactive in all aspects of the business relationship can go a long way at invoice time. If you find that invoices are not paid on time, be vigilant about following up consistently but do so in a friendly yet professional manner. If a client’s business is struggling with cash flow, they will be more likely to prioritise payment to the consistent creditor that is serious about being paid.

The final straw

Sometimes, the most proactive strategies and the most savvy business owner cannot prevent a situation of unpaid invoices, so if you find yourself in a situation where you need to chase debtors, you may opt to engage a debt collection agency or lawyer.

Before doing this, contact your client one last time to give them a chance to pay. More often than not, when they realise you are serious about debt collection and willing to take formal steps, they will pay immediately.


Jarrod Kagan
Having practised at a major law firm before moving across to Probe Group (one of Australia’s most prominent credit management organisations), Jarrod has over 8 years’ experience in credit management and debt recovery. He now holds the position of Head of Business and Compliance and as a qualified Lawyer, his skill level and experience covers the technical aspects of credit management and debt recovery, including: best practice, compliance, legislation, strategic analysis and industry specific detail.