In the current economic climate, there’s a possibility that your business is feeling the impacts of a cash squeeze.  One of the most common causes of a cash squeeze is when customers repeatedly delay payment of your invoices.   Often this leads to a flow on effect as you manage the shortage of cash meaning that you, in turn, hold off paying your own bills, and commence either negotiating alternative payment terms with suppliers, or borrow funds to meet your business’ cash flow requirements.

In times like these, collecting payment for outstanding debts becomes of utmost importance to the survival of any business.  Collecting debts that are overdue can be costly, time consuming, frustrating and a significant drain on your business’ resources.  That’s why your business’ debt collection strategy needs to step outside the box and start much earlier than when your unpaid invoices are stacking up and your business is feeling the full impacts of the cash squeeze.  It requires a change of focus from ‘debt collection’ to ‘customer cash management’ that needs to start from the moment you attract a new customer, client or job.


So, with that in mind, here are our top eight tips that your business can put in place today to help you get paid and avoid the full impacts of the cash squeeze:


1. Cash on Delivery

The best way to make sure that you will be paid for delivering goods or services is to get full upfront payment at the time of supply.  Of course, in reality this isn’t always practical or appropriate, especially in the service industry.  In these situations, you may want to consider other forms of upfront payment such as a deposit, a credit card “pre-authorisation” amount or a sign-up fee.


2. Extend Credit with Caution

Not all clients are a good risk when it comes to extending credit. If you are entering into a supply arrangement with a customer where you will be effectively extending credit for a period it may be prudent to request credit references before entering into the arrangement or purchasing a credit risk report from a reputable reporting agency.  If, after doing your homework, you are nervous about extending credit to a potential customer, you may need to seriously consider insisting on payment upfront or ‘cash on delivery’ terms.


3. Tighten up your Terms

Do you have trading terms that are presented to every customer or client at the time they engage your services?  Have those terms been reviewed by your professional legal adviser to make sure they are enforceable?  Do they include terms such as:

  • disclosure of how fees will be charged to your customer;
  • when invoices will be due for payment; and
  • the consequences of non-payment such as suspension of supply, accumulation of interest, & recovery of collection fees.


4. Setting Boundaries

As well as your standard trading terms, your initial customer contact should include a specific ‘scoping’ exercise.  Try and be clear about:

  • what you are realistically aiming to deliver for this job;
  • what you will need from your customer to achieve that goal (including the amount and timing of any payments along the way);
  • any changes to your standard trading terms that will apply to the job; and
  • any issues that you can foresee that might impact upon the price you will ultimately charge your customer.

It’s a good idea to set this out clearly, preferably in dot-point form, and give a copy of the document to your customer so that any issues can be ironed out before you start your work.  If there are no issues, make sure you get your customer to sign the scoping document and keep it on your file.


5. Maintain Healthy Customer Relationships

Often, non-payment of a debt can be the unfortunate result of poor customer management such as miscommunication or unmet expectations.  Try and foster transparent relationships with your customers so that issues that come up along the way are dealt with promptly and before resentment creeps in.


6. Get a Guarantee

Think carefully about who your customer is.  If it is an incorporated entity (e.g. a company) or an individual with few assets, you may need to consider getting some enforceable guarantees in place.  This means that if your customer is unable to pay your bills for some reason, you can still enforce payment against someone who can.


7. Retain Title

A ‘retention of title’ clause is a common trading term that many businesses would be familiar with.  It states that certain goods continue to be owned by the supplier until full payment is made by the customer.  However, some businesses may not realise that the enforceability of those terms have been impacted by the introduction of the Personal Property Securities Act in January 2012.  There are now certain steps that must be taken within tight timeframes to obtain the benefits of a ‘retention of title’ clause.  You should speak with your legal adviser if you are unsure about these changes.


8. Efficient Billing and Collection Systems

Do a ‘self-audit’ of the billing & collection systems in your business (or ask a professional to do it for you).  Are there more efficient ways of getting payment from customers, so that the key people in your business are not tied up chasing debts?

Ask questions such as:

  • Do you keep track of changes to customer details to make sure that invoices are being sent to the right person?
  • Are invoices sent out promptly and regularly?
  • Can you send your bills by email instead of post?
  • Are your invoices easy to understand so that customers know exactly what they’re paying for?
  • Do your EFT payment details appear clearly and prominently on each invoice?
  • Do your invoices make it clear when the invoice will be due for payment and the consequences of non-payment?
  • Are payment reminders sent promptly upon an invoice falling overdue?
  • Would it be more efficient to out-source your billing & collection processes to say, a bookkeeper?



Of course not all of these tips will be right for every business or industry and so you need to think about what works for your business in consultation with your professional adviser.


For further information, please contact the author.

This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.