DEBT COLLECTION:
The 6 Steps to Stopping the Leaking Tap of Customer Debt

A well-managed cash flow is the foundation for a strong business that will succeed. What Terms of Trade do you operate under? What invoicing and follow up processes do you follow?

A poorly-managed cash flow is a sign of a business that will struggle and fail.

An invoice that is not promptly paid is a leaking tap for your business, and left uncollected can damage the continuation and development of your business.

Make sure the invoices are promptly paid. Do not ignore the leaking tap or your business will be flooded with debt.

Are you too slow to sue the debtor? Are you too slow to see the leaking tap?

Hassall’s Litigation Services will help you manage your cash flow and stop the leak.

1. What are you selling or what service are you providing, and what are the terms of that sale or service?Example: Cash/Payment in advance of delivery. Or payment within 30 days of delivery.A cash payment is immediate and best, but as most businesses develop, they allow some credit. You should investigate debt insurance. You should have a Credit Application, with personal guarantees from people who actually have assets or accept the risk of non-payment.  You decide how much and with whom you take a risk. OR, simply don’t take a risk at all and treat everyone the same.
2. Payment terms should be something like –“Payment within 30 days of delivery” or “Payment within 30 days of the date of Invoice”. i.e. “the Due Date”.Then if not paid, a reminder should be sent out 21 days after delivery or date of Invoice to remind the customer when payment is due – identify the due date.
3. How many reminders are you prepared to send? First at 21 days to remind them of the due date; the second 7 days after the due date; the third at 14 days and then 21 days after the due date.
4. Send a solicitor’s letter of demand at 30 days after the due date.  Hassall’s Litigation Services offer a simple and inexpensive process HERE.  Once the form is completed, the small fee paid and we have a copy of the original Invoice, we will send a letter of demand to the debtor on your behalf.
5. If you don’t get paid after the letter of demand is sent and you want us to sue the debtor, then this step costs you more money (than the letter of demand) and we need proper “instructions” and a copy of all relevant documents.You need to understand the process and the approximate cost (and the pain) of court or consumer tribunal proceedings.You only ever really understand when you have done 2 or 3 proceedings and paid the legal fees and see what you get out of the proceedings – then you’ll tighten up on allowing credit and not having proper documents and then only need to use lawyers on few or rare occasions – only when you absolutely have to.
6. Step Six: This is a review/update of your invoicing process and written terms of trade or the preparation and ongoing review (bi-annual) of your terms of trade.Using terms of trade do not stop bad debts but establish the basis for (as far as possible) successful legal proceedings.

An example of how HLS has helped our clients

John* (*Not the client’s real name) issued a Summons in the Magistrate’s Court. His company had issued an invoice and when the invoice was unpaid, John had arranged for the issue of a debt collection summons in the local Magistrate’s Court. John had received a letter from the debtor’s solicitor informing him that because the Plaintiff was a company, John was unable to conduct the litigation himself and was required to instruct a solicitor.

John’s problem was that a local estate agency had delivered advertising material to his company’s post box. John had written to the estate agency asking it to instruct the courier not to put the advertising material into the post box. The advertising material – which we all call junk mail – kept coming and eventually John – exasperated with the rudeness – informed the estate agency that his company would charge the estate agency a fee to dispose of the advertising material.

The junk mail kept coming and so John issued the invoice, which was not paid and the proceeding was commenced in the local court.

The debtor’s solicitor required that John’s company discontinue the Summons or the estate agency will seek an order to strike out the proceeding with costs.

We advised John that the claim was very unusual and the legal costs would be expensive and would be far in excess of the sum claimed. A compromise would save John a costly legal bill, yet achieve what he intended when he issued the invoice.

We advised John to respond with an offer that his company would discontinue the proceeding and not claim costs if the estate agency agreed to cease leaving junk mail in his company’s post box.

The offer was accepted and the matter was resolved the next day.

John’s inquiry was unusual but was resolved very successfully. Not all debt collection matters are resolved so quickly. John’s story however illustrates:

1. First, how prompt action following up on an unpaid invoice, no matter how small, is better than no action, which usually means the invoice becomes stale and must be written off;
2. Ingenuity and common sense are important in managing cash flow.

This article provides information that is general in nature and is not a substitute for legal advice.