Released every month our debt collection blog contains news, stories and tips to keep you informed.
As with any progressive businesses with growth aspirations, the importance of strong cash flow in Professional Service organisations should not be underestimated. In particular, the two elements of credit control and debt collection play critical roles in maintaining strong cash flow.
This article aims to provide guidance on preventative action that can be undertaken for credit control and debt collection within the professional services sector. It can be used as a starting point that your organisation can use to develop a framework for preventing bad debts in the first place.
Firstly, you must have correctly identified the different risks of your client base before you can effectively implement preventative processes in credit control and debt collection. You can read about this here.
Once you have broadly categorised your clients, you can then consider the following preventative action;
Payment in advance or at the time of goods or services are delivered is ideal, and the best form of preventative action. However this option is not always available for a variety of reasons including;
Consumers are much more accustomed to paying in advance in today's environment compared to 10 years ago. E-Commerce (sites such as wotif.com.au, ebay.com.au) has been exceptionally good at changing consumers behaviours. We now see tradespeople such as plumbers and electricians carrying mobile EFTPOS machines and taking payment upon providing services.
Where you can, take advantage of this change in consumer behaviours and do not offer credit where you do not have to.
Look at what the experts do before they offer you credit. In referring to experts we are referring to lenders such as Banks, Building Societies and Credit Unions. Apply the context of your business to a credit application form and the amount of information you will require. This will depend on the amount of risk you have attached to any one particular client.
At a minimum, ensure you have a credit application form and always seek directors guarantees and references in your credit application form.
Ensure you can setup credit limits within your system.
We note that a personal guarantee is not worth much if the person has no assets, or all their assets are fully encumbered.
If you are supplying goods of significant value, use the PPSR. Where you have "perfected" your security and you do not receive payment, you have a right to recover your goods. This puts you in a much more secure position compared to an unsecured creditor in the event of insolvency.
Based on the different profiles of your clients, setup your credit control and debt collection processes for each of these profiles;