Debt Management Procedures

✓ Be honest and up front with your customers.

✓ Treat your customers as you would like them to treat you, if the roles were reversed.

✓ Tell everyone what your rules are - up front and often.

Step 1. Develop a credit policy (Refer Example Appendix 1)

Step 2. Communicate your credit policy to your customer’s e.g.

First meeting
Letter of proposal
Display credit policy on front counter Include on invoices

Step 3. Ensure your staff are aware of your credit policy and also communicating it to
customers.

Step 4. Enforce your credit policy.

Note: If you have done a good job of communicating your credit policy, the job of
enforcing it is made much easier.

Enforcing your Credit Policy

1. Nominate a person to handle the Debt Collection.

- Ensure that this person is trained and confident to handle this position
- Remember it can be a difficult job and needs time put aside without interruptions

Note: It is advised to have a Debt Collection hierarchy. When the initial person has not
been able to get a response from the customer the next person will make
contact with the customer. In small business this may only involve the Secretary
and the Owner.

2. Monthly, print out an Aged Trial balance of Debtors. This will give you a list of customers that
have not abided by your credit policy.

3. Make up a Debt Collecting File e.g. Lever arch file with alphabet dividing sheets.

4. Make a cover sheet for each of the customers with outstanding debts. This will provide a
record of all action/s taken to recover the payment.

5. Have a Debt Collecting Diary - Note down when money is to be received or when you are
going to contact the customer next. Look at this diary daily.

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 Tips

1. Always make yourself out to be the Good Guy.

- Be pleasant to your customers
- Be overly helpful and friendly with all customers to start with and then progress to a
more business like manner with each additional contact you have to make.
- Collect all payments as soon as possible - while you are the Good Guy

2. Become hard to ignore

- Make contact a week after the debt was due. (This allows payments that were
mailed on time to be received)
- If you ring and they are not available, leave a message for them to return your call
letting them know that you will call back if you do not hear from them within a set
time.
- If they do not pay on the day they have nominated – call
- Remember the Good Guy approach - as per point 1.

3. Make sure you get the best arrangement - Don't ask them how much they can pay, ask
them "How much are you short?"

4. Tie your customer down to a time when the money will be paid to you. Do not allow
them to end the conversation with "I will look into that".

5. Do not argue back under any circumstances. If the customer starts to become
argumentative simply ask for more information about the problem as the customer sees
it. Terminate the call as quickly as possible e.g.

"Thank you for telling me that. We really need to sort this out.
Leave it to me. I'll speak to the manager and see what we can do.
Can I call you back later this afternoon or would tomorrow morning be better?"

6. Make every call a productive call.

If you have to leave a message always let them know that if the customer has not
returned your call by a certain time that you will call back.

7. Send out a copy of the invoice with a "Reminder Stick" instead of the first letter. This may
save time as letters can be time consuming. Reminder stamps and stickers are
available through the local office supplies stores or you can get your own specially
printed. The fluro varieties have the most impact.

8. When sending letters use a template and the merge features in Microsoft Word.

It is important to follow up on collecting your debts. If the customers do not hear

from you they will think that it is OK to extend their credit period.

Your customers do not like losing a friend, even if it is a business friend.

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 Appendix 1:
Credit Policy

1. Credit checks on customers. For example:

- Customers to complete a Credit Application

- Call at least two of the referees and check on customers account conduct

- Advise customer of their credit limit and credit terms.

- If any doubts with client have them pay cash for first invoice then work to 30day
account

- For business customers wanting credit over e.g. $5000 (this amount will
depend on the size and type of the business) do a credit search.

Westpac Bank has a facility on their website under for example under Loans &
Leasing called “Credit Check Reports”.

2. Trading Terms. For example:

- We offer all customers a period of thirty days from the date of invoice within
which to settle their account.

- It is our policy to invoice customers on completion of job.

A good Cash flow allows your business to function smoothly. It is important to let
your customers know when their payment is due. It is better for your cash flow to
work on 30 days from date of invoice or even reduce the payment period to 14
days from date of invoice. If you are accounting for the GST on an accrual basis
this collection period will allow the majority of payments to be received before the
BAS has to be submitted.

Include trading terms on invoice.

3. Invoices - When invoices will be sent out:

For example: weekly or completion of job;

on the 15th & 30th of each month.
(the more frequent the better for cash flow)

4. Interim Accounts/Progress payments:

These accounts are sent out to customers who have jobs that will take over a long
period of time to complete.

An interim account letter is sent out to the customer firstly which is

approved/signed by the customer and returned to be kept on record.

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 5. Person in Charge of account recoveries:

For Example: Name of person

When accounts will be reviewed e.g. weekly
Collection Procedure
Target debtor days - refer spreadsheet model (Appendix 2)
Discount Reminder Emails/Fax/Letters

6. Discounts:

For Example: Discount 2.5% of total account providing full payment is

received no later 14 days from the date of invoice.

N.B. This is costly and should only be used if your overall pricing structure is
adjusted upwards to absorb any negative impact of the discount.

7. Monthly Statements
For Example: Monthly statements will only be sent out if requested by the customer.

8. Reminder Letters (Refer examples)

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 Appendix 2:
Collection Procedures
(If 30 Days after end of Month)
Example

All Invoices $500.00 And Under All Invoices $500.00 and Over
Timing Step No.

Action to Take To Be Done By Action To Take To Be Done By

Day 1 1 Invoices sent to all customers

One Week
after Month 2 Print out Debtors Trial Balance
End

……................. …….................
………………… …………………
Email/Fax/Send Email/Fax Letter
37 Days ………………... ………………...
3 Letter 1 to All 1 to All
Later ………………… …………………
Customers Customers
………………… …………………
………………… …………………

……................. …….................
Phone
………………… …………………
Customers.
47 Days Send Letter 2 to All ………………... ………………...
4
Later Customers ………………… …………………
If unsuccessful
………………… …………………
send Letter 2.
………………… …………………

……................. …….................
Phone
Phone Customers. ………………… …………………
Customers.
57 Days ………………... ………………...
5
Later If unsuccessful, ………………… …………………
If Unsuccessful,
send Letter 3 ………………… …………………
Send Letter 4.
………………… …………………

67 Days Stop Credit

6 Decision Time
Later Send Letter 5

Decision Time
1. Accept a Payment
Arrangement
77 Days
7 2. Order Solicitors Letter of
Later 1. Order Solicitors Letter of Demand
Demand/Collection 3. Stop Credit

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