What happens when things don’t go to plan. And tips on how to ensure you maintain your cash flow.

This post is more about providing some helpful insight to SME’s who have the eternal problems of clients and cashflow.

As all of our clients know, we have a very strict 7 days Net payment terms but occasionally for any number of reasons, clients will fall off our radar, and we have to chase debts.

Last year we did a significant once off job for a client.  The client opted not to pay, and this sent us down our usual path of financial recovery.  Then I realized that there may be some other businesses out there that haven’t had to go to court to retrieve funds and that this may be of use.

After our 7 Days payment terms are missed, clients are typically placed on hold.  We are understanding to clients, but hard on the problem.  We have learnt that the longer invoices go unpaid, the less likely they are to be paid.

Tip 1:  Have strict payment terms that you adhere to.

If a hold yields no result, for example its slow-moving stock, and they only intend to pay when they require it, we pass it on to our debt collection team.   Our debt collections agents have worked for us for many years, and through their experience we tend to recover 95% of debt.

Tip 2:  Have a debt collection agent that you work with and have them help you draft your terms and conditions.

Debt collection will occasionally refer us to take our clients to court.  In South Australia, we aim to collect debts that are able to be dealt with through small claims court (Less than $13k), as you can self-represent.  Once it becomes a larger amount, it’s a larger civil action.

Tip 3:  Have lawyers that know your business and can provide cost effective advice.

If you run your own business, you could opt to not use debt collection, as this may save you resources.  We pass on our costs of debt collection to clients, however if your terms and conditions do not state this, you may have to absorb the costs.

To take a client to small claims court, in South Australia you register online through the courts.  In doing so, you need to collate all your information, and lodge a statement of claim.  This does not need to be done by a lawyer, but you need to take care to write your statement in a way that is easily comprehensible.  Your statement of claim is lodged online, and you will need to make a payment for the court fees.  You will also need contact details for your client as they will be notified of the claim.

Tip 4:  Ensure when you on board new clients you have a completed business and personal particulars.

Once you have lodged your statement of claim, you will then have to wait for the respondent, to respond.  This can take up to 30 days.  Once they respond, a court date will be set for a directions hearing.  It can be up to 3 month wait for a directions hearing.

Tip 5:  Set yourself up for a long wait time for debt recovery if it goes to court.

Once your directions hearing occurs, you attend court, and have a hearing with a Registrar of The Court.  The magistrate reviews the case in front of them, based on the information you provide in the statement of claim, and then starts a mediation.  The registrar’s intent is to solve the problem at the lowest possible level.  They have the power to issue a court order, which would ensure payment of any debts as well.  The Registrar will provide you with information about facts if you choose to proceed, and they will help shape your thinking.  If a resolution is not able to be made at the directions hearing, you, as the applicant, can opt to take the case to trial.

A trial requires far more resources from both parties.  While you can self-represent, you would need to do substantial work to prepare.  For example, do you need a witness, or an industry expert?  The trial fee, and your time and effort are unrecoverable even if you win.  The best thing to do, is avoid this if you can.  Know the costs, talk to your lawyer, and proceed with caution.  The trial will yield a result, which may or may not be in your favour.  Don’t take it personally and keep your ego in check.  The money is about your business and is not a reflection on you as a leader/manager/owner/operator.  Our advice is to separate the issue from the person.  Both yourself from your organisations role chasing the money, and your client you are chasing, from their business they represent.

Top Tip:  Avoid court at any cost (if you can).

As always if you have any questions about any of this, give us a call.  We are full service, and happy to help all of our clients grow, and navigate through the difficult terrain of running a business.

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