Unpaid debts can drag your business down. The money that you are owed is not available to you for expansion or the day-to-day operation of your business. Chasing it down costs precious personnel hours that could be spent generating new income instead. And it can be demoralising for a small- or medium-business owner to do extensive work for a customer only to get stiffed on the bill. Unfortunately, these sorts of unpaid debts are not at all uncommon. The Sydney Morning Herald reported that Australian SMEs are owed around $26 billion at any given time due to unpaid invoices. With an average unpaid debt of $13,200, that translates to many businesses lacking the cash flow that can spell the difference between success and struggle.
While these sorts of debts will never be 100% avoidable, there are ways you can keep them from potentially tanking your enterprise. Here are a few of the most effective strategies for making debt a thing of the past:
Research Your Customers Thoroughly
Unreliable clients can’t fail to pay you back if you never extend them credit in the first place. By learning who you are dealing with and acting appropriately, you can cut your chances of getting stuck with an unpaid bill.
Before extending credit, do your research to ensure that you’ll get paid for your products and services. Checking credit history is the first step; if someone has failed to pay their bills in the past, which is a good indication that they may fail to do so in the future too. Research a business’s practises to learn whether they are above board. Ask for references from previous creditors.
The information you get on a prospective client can give you the tools you need to make the best decisions. Those with a sterling history of repayment can be extended credit to increase their order size. Those who have trouble paying their bills should probably pay cash.
Get Debt Collectors on the Case
Hiring professional debt collectors or debt lawyers can significantly decrease the amount of money that you are owed. These agencies, for a fee, will send letters, make phone calls, and even, if necessary, file suit against those who fail to pay your invoices.
The fees for debt collectors or lawyers who handle debt will vary. In most cases, the cost is around 25% of any recovered debt. If a debt is not recovered, there is typically no fee.
Bring an Invoice Financing Company into the Mix
In some cases, the best way to preserve your cash flow is to remove the uncertainty of unpaid invoices altogether. An invoice financing firm will advance your company up to 90% of the cash you are owed on each debt. You get the money immediately, and they receive the payment. While an invoice financing company will not chase down your debtors for you, this method does ensure that you’ll always have enough cash to keep business going smoothly. It also lets you maintain control over your customer relationships. Meanwhile, your employees’ talents and time can be redirected in directions that help you build your business instead of desperately scrambling to replenish cash flow.
Don’t let debt keep you from growing your business to success. A bit of preparation before doing business and some resources after the fact can help keep your cash flow steady. By using these strategies individually or together, you can significantly cut your outstanding debts and put more money into the coffers.