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invoicing and terms The Power of Knowledge

Prepare Your Customers for Collections in Advance.

Lesson 4

Invoicing and Terms

Providing goods or services.

Any time you provide goods or services to a customer on credit there is an obvious expectation that they are going to pay you back within the agreed terms, but what happens if they don’t?

In our experience, most businesses collect about 80-90% of their accounts within the agreed period.

Of the remaining percentage, 60-80% are collected within what we call the ‘late day collection period.’ This is usually within 30-45 days after the debt was initially incurred. In most cases, these collections come about either via the customer’s own volition or through a firm approach by in-house accounts staff within the business.

This leaves a balance of between 2% and 8% of debts that go into what we call contingent collections. Debtors who have entered this period are clearly showing signs of cash flow stress and the debt is at serious risk of becoming delinquent.

It’s at this point that professional debt recovery agencies (like BCA Debt) should be called in. While businesses may often send letters of warning saying that they will soon be referring the debt to a collection agency, the time to warn them of this possibility is actually before the debt is entered into the contingent collections.

This should be outlined in your terms of trade when a customer originally enters a debtor agreement with you.

What should be in your terms.

  • a warning that overdue debts may be referred to a debt collection agency
  • a warning that all debt recovery costs are the responsibility of the customer
  • any details of default interest (usually around 4% per annum) or late payment fees that would be due if a payment is outstanding
  • details of whether the customer’s account will be suspended or terminated if they are overdue
  • details of whether the customer’s debt may be reported to a credit rating agency (if appropriate)

If details such as these are not agreed to in advance, taking actions after the debt becomes overdue may put you as a creditor at risk. You may find that debtors dispute such actions as sharing their details with a debt collection agency or applying late payment fees on the basis that their agreement with you did not include such actions.

These problems are preventable but only if you prepare your debtors in advance.

These are just some of the matters to consider when entering agreements to provide goods or services on credit

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