Effective Debt Collection Strategies for Small Business

How small business can effectively manage debt recovery

Chasing unpaid debts is something every business owner has to deal with at one time or another. Outstanding payments and the dreaded ‘’slow payer’’ can have a detrimental impact on your business. However, understanding and implementing appropriate debt collection strategies will help you navigate the process and reduce the amount of outstanding debt you have.

Small business debt recovery strategies

Taking a methodical approach to debt recovery can be very effective for small business. By having a documented escalation process in place, your accounts receivable department have clear guidelines to refer to regarding when and how payment follow up needs to occur.

Common debt recovery steps that businesses can manage themselves include:

Friendly reminder – When payments are overdue, reach out with a friendly reminder, either via phone or email. Often times, payments have just been overlooked or temporarily delayed. Keep a record of this communication in case you need to escalate further.
Overdue reminder – If your friendly reminder does not result in payment, follow up a second time, again reminding them their payment is outstanding and past due.
Final notice – If your reminders still don’t resolve the issue, you can follow up again with a final notice, referencing the previous attempts to collect payment and reminding them of the terms and conditions of your agreement.
Formal letter of demand – A final attempt to collect payment can be made in the form of a formal letter of demand. If you decide to do this, it is recommended that you seek advice from a debt recovery professional.

Professional debt recovery services

If your own attempts to settle outstanding payments have been unsuccessful, there are additional channels you can go down to settle the debt – engage a professional debt collection agency to act on your behalf or seek payment through your local small claims court.

Debt recovery agencies

Agencies offer a number of services and specialise in the collection of outstanding payment. Having a debt collection agency manage the process on your behalf removes the stress and time required to resolve outstanding payments. They are experienced in the most appropriate collection methods and mindful of the legal obligations and best practices that must be adhered to.

Just make sure that the agency you choose to work with is compliant with debt recovery ethical standards and industry regulations.

Small Claims Court

All State and Territory courts in Australia offer a small claims division that provides a simple debt recovery procedure. The process is relatively informal, and costs awarded against an unsuccessful party are limited.

It is important to note that your claim will be heavily supported by the original terms and conditions both you and the debtor entered into prior to products being supplied or services being completed.

The amount you can seek in small claims court varies state to state. Depending on the state and for larger debts (over $10k) you may need to engage a solicitor on act on your behalf. It’s important that you get advice on when the most appropriate time to use the services of a solicitor, as their costs can add up quickly.

Whilst we have outlined the common debt collection steps that businesses can manage themselves and channels that you can pursue to recover your debt, you may want to read a few of our other informative articles about successful debt collection;

If you currently have an outstanding debt and would like to speak to us about best practice debt recovery or how a professional agency can greatly benefit your business, please get in touch today!