What is a Debtor and Common Pain Points
A debtor is someone who owes you money for goods or services you have provided. Seems pretty simple, but there are many loopholes that can catch out small business owners. Below we have listed a few considerations;
- Did the client sign a quote or letter of engagement to confirm they wanted to proceed with the work you provided?
- Did you complete credit check on the client?
- Did you stipulate what your payment terms are?
- For bigger projects, did you get a deposit up front?
Time and time again we see small business being crippled by high value debtors, a common question we get is “where’s all my profit?” the simple answer in most cases is that it’s sitting in the aged receivables list.
Not getting paid on time can cause loads of cash flow stress and send a business broke fast.
A few simple tactics to help improve the front end of process is to;
- Get the client to accept the quote or sign the engagement letter, this puts a contract in place and gives a leg to stand on if you initiate bad debt collections.
- Run a simple credit check on clients, there is some guidance on the ASIC website on how to perform this task, or you can implement an app to run the credit checks for you.
- Be clear on what your payment terms are and provide the customer with a couple of different ways to pay.
- Get deposits up front for bigger projects, no brainer.
It can all seem to hard sometimes to implement this stuff, but if you don’t give this process serious consideration it can be the undoing of all your hard work.
The next video in this series is: Payment Terms; Yours or Theirs