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Debt Collection for Professional Services: Preventative Action

Friday, June 13, 2014 - Posted by Philip Harvey

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;

Be selective about who you actually offer credit terms to

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;

  • Your client would use your competitor if this was enforced
  • Your client might not have the cash flows to immediately pay you (this can be relevant to the construction industry with their payment upon milestones common or the rural / farming industry where income is based on seasonal crop harvesting

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.

 

Have the right processes in place before you offer credit

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.

 

Undertake due diligence

Once you have received a completed credit application form do your research and perform;
  • an ABN search
  • a Company search
  • Credit Reporting Authority search (such as Veda or Dun & Bradstreet)
  • A property search on any person providing a guarantee
  • review the credit applications ability to repay the debt (you might want to consider this for large debts and seek financial information such as tax returns, assets and liabilities including bank statements)
The amount of searches and information checked will depend the amount of risk you are prepared to accept.

We note that a personal guarantee is not worth much if the person has no assets, or all their assets are fully encumbered.

Use the Personal Property Security Register where possible (PPSR)

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.

Have processes and procedures in place for credit control and debt collection

Based on the different profiles of your clients, setup your credit control and debt collection processes for each of these profiles;

  • have approved letter, fax, email and SMS templates in place
  • have phone scripts available if appropriate
  • have time frames for specific actions to take place in the collection cycle
  • ensure you have a designated resource in place to perform the credit control and debt collection function
  • regularly review your aged receivables and refine your processes

 

LCollect are a specialist debt collection agency, covering a wide range of industry sectors to achieve the best possible debt collection results for a diverse range of clients. We aim to deliver a sensitive and positive service experience whilst improving client cash flows.

To engage us or if you’d like a free and confidential consultation, please call: (02) 8923-1631 or click here to contact us.


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