While there are many reasons to start a business, one of the key drivers for many business owners is to make/earn/attract money.
It’s hard to figure out why words like money and sales make many people a bit uncomfortable, but the reality is there is no business if you have not figured out how to make sales and bring money into the business, then you do will not have a business for long.
Even a hobby or a pass time you enjoy can become a business, but if you do not get paid then it really is still just a hobby. And remember, making sales does not automatically mean you are bringing in any money.
If you have been in business before you will know that making a sale is a very different process from getting paid. Sometimes it is easy and straightforward and we all do it all day long:
- Paying for petrol on the spot
- Getting a hair cut
- Buying groceries, etc
Often we even pre-pay buying on the internet, for example.
It seems to be all too easy, but when it is your business and especially when it is a goods or service-based business such as a trade business, or a retail business, it might be not as straightforward, because when you send an invoice (your request for payment), not everyone pays attention to the due date or is playing by the rules.
Unpaid invoices are something we’ve all had to deal with at least once in our lives as business owners. It’s unfortunate when it happens and usually results in stressful situations for both parties. Especially in New Zealand, where we tend to take a chill approach, it can become difficult to recover an unpaid invoice if the other party chooses not to pay.
The best way to deal with the situation is to communicate. Communication can resolve many matters. Yet sometimes it fails to deliver.
The last resort can be referring the debt to a collections agency. But there are many myths, misconceptions and prejudices surrounding debt collection. Here we’ll try to bust some of these wide open, so the next time you have an unpaid invoice you can be confident in working with a debt collections agency.
Myth: It costs money to work with a collection agency
Most collection agencies work on a contingency-fee basis, which means that you only have to pay if they are successful in collecting payment from the debtor. Others will charge a flat fee. Either way, when you hire a collection agency you are hiring experts who can increase their sales by collecting money for their customers.
If your customer has signed and accepted your Terms of Trade before you begin work for them then any collection fees can normally be charged to the person who owes you money, This is why it is so important to have good Terms of Trade or T’s and C’s to support your business, and why it is so important that they are signed and accepted at the beginning, before any time or money is invested. This one simple part of the credit management process allows a lot of flexibility to escalate the actions you take for unpaid accounts and allows you to undertake collection action without having to compromise profit margins.
Paying for professional services can actually save you money in the long run, not to mention provide you with financial stability.
On top of that they offer services which can:
- Help protect against the loss of cash flow and profit
- Provide indemnity from potential liabilities
- Enable fees to be imposed for late payment
- Provide reservation of title until goods are paid for
- Reduce the cost of monitoring payments
- Promote efficient and transparent accounting
- Ease the resolution of unpaid accounts and disputes
- Enable you to collect debts simply and effectively
These services are being provided by NZBT with ease, check out this link to learn more.
Myth: Pursuing customers will just make them angry
This is a common myth that business owners often believe – that if they pursue their customers for their outstanding debts, they will just get angry and possibly never do business with them again.
However, this is simply not true. In fact, most customers understand that businesses need to be paid for the products or services they have received, and they will respect you more for taking the time to collect what you are owed.
If people forget to pay their bills, you can ask if they’ve forgotten their dues or if they’ve received the notification from you. This way, you can follow up and make sure they’re staying on top of their payments.
Here are some other suggestions:
1. The best way to reach your customer is through an omnichannel approach that involves contacting them through the right channel at the most opportune time. Can you change your contact strategies quickly enough to allow customers to resolve issues on their own through various channels such as auto voice, SMS/WhatsApp, digital direct API, email, mobile app, online or edocs?
2. Making comparisons is a powerful way to motivate people. As demonstrated by an experiment conducted in 2010 by a division of the UK tax department. They found that simply adding one sentence to their standard reminder letter increased tax collections by 6%. The sentence read: “Nine out of ten people with a debt like yours, in your area, pay their tax on time. You are in the minority…”
3. Offer various payment methods to your customers to make it easy for them to make payments. Online payment systems, card payments, and other options should be available to make the process as smooth as possible. By offering multiple payment options, you’ll be able to speed up the process and get paid back more quickly.
Myth: Use of collection agencies by businesses results in financial loss
This is simply not true. In fact, businesses that use collection agencies are often able to recoup more money from delinquent accounts than they would if they tried to collect the debt themselves. Additionally, businesses that use collection agencies can free up their own staff to focus on other tasks, and they don’t have to worry about the intricacies of collections.
Finally, customers who know that a business is using a collection agency may be more likely to pay their bill on time, since they don’t want to risk having their account turned over to collections.
Myth: They’ll damage your reputation.
There are many outdated and preconceived ideas about what debt collection companies do, but in reality they are far from the general stereotype. Their business is to recover your money, and they will do that in an efficient and ethical manner. They are governed by the Fair Debt Collection Practices Act, which details when they can reach out to people and how often. Utilising a debt collection agency will show you take it seriously and will save you the stress of having to raise those overdue invoices with the client directly.
Developing a positive professional relationship with a debt collection agency can help you create and implement systems that will make it less likely for invoices to become overdue. This way, you can focus on running your business without having to worry as much about collections.
Myth: Large firms are the only ones who utilize debt collecting services.
A business cannot grow if it has non-paying customers. The idea that only large companies need debt collection agencies is nonsensical because companies can only grow by expanding, not staying the same or, worse yet, shrinking.
Outsourcing debt collection to a professional agency can save small businesses time and money. Debt collection agencies are experts in the laws surrounding debt collection, so they can help you collect your business’ debt quickly and efficiently. Plus, using a debt collection agency can help you avoid the potential legal pitfalls of trying to collect debt yourself.
Myth: I shouldn’t use a debt collection company until bills are at least 90 days overdue
There is a common misconception that debt collection companies are only to be used as a last resort, when bills are far past due. However, this is not the case.
The sooner you refer a debt to a third-party debt collector, the higher the chance it will be collected. Debts that are referred to collection agencies when they’re 30+ days overdue are much more likely to be collected than those referred when they’re 90+ days overdue.
Using a debt collection company sooner rather than later can be beneficial for a number of reasons.
- Debt collection companies have experience and expertise in collecting payments. They know how to work with debtors to get the money that is owed, and they are often successful in doing so.
- Another benefit of using a debt collection company is that it can help to improve your cash flow. When you use a debt collection company, you are essentially outsourcing your accounts receivable function. This means that you will receive payment for the outstanding debts sooner, which can help to improve your cash flow situation.
- Finally, using a debt collection company can help to improve your relationships with your customers. When customers know that you are using a debt collection company, they are more likely to take your invoices and bills seriously. This can help to foster better relationships between you and your customers.
The main point is that they’re shouldn’t be your last resort instead, they should be your first action.
Myth: I don’t need them because the debts aren’t big enough
Why wait for things to get worse before you take action? It’s like waiting for a tumor to grow. Don’t wait until your debts are causing problems with your finances before you make a move.
If you have debts that are causing problems with your cash flow, it may be time to ask a debt collection agency for help. Think about how much time and energy you are spending trying to get the money that you are owed. Could that time be better spent on other areas of your business?
Myth: It only applies to very old debts
Regardless of the size of the debt, all debts need to be paid off. It doesn’t matter if it’s paid early or late, the only thing that matters is if it gets paid at all. With this logic, you should know that debt collection isn’t only applicable to old debts, but to all debts.
Research indicates that the sooner a debt is referred to a collection agency, the more likely it is to be recovered. Therefore, rather than chasing debt in-house for months on end, it may be more effective to hand it over to a debt collection agency. You can even set up an ongoing arrangement whereby the agency will take on any debt which reaches a certain age. This helps to maximise their recovery and remove the time and resource burden on your business.
That concludes our list of the most common myths of debt collection. We understand how difficult and time-consuming it can be to chase customers for payments that are way past due. This is because we have years of experience when it comes to debt collection.
If you or your business is not getting paid on time, we’re here to help solve the problem. To do that, we need to find out why this is happening by answering one question: do you have Terms of Trade in place? If you do, that’s one step closer to getting paid. If you don’t, don’t worry – NZBT has got your back.
Many small businesses are struggling because they are not being paid on time. This is often because they do not have written terms of trade, instead relying on a handshake or basic written quote. If they do have terms of trade, they may not be legally enforceable because they are not effectively included in contracts with customers. This could only come to light when the business owner tries to recover an overdue debt from a customer, but by then it may be too late.
It’s always a good idea to have a Terms of Trade document for your business because it could save you a lot of headache and money down the road. By having one, you increase the chances of being paid, prevent bad debt, and lower your risk.
Many times, people or businesses who choose not to draft a Terms of Trade end up regretting it later when disagreements or other problems arise. Having this document ready can help avoid all sorts of issues, so it’s definitely worth the time and effort to create one.
Here at NZBT, we want to make sure you’re getting paid for your hard work. That’s why we have Terms of Trade in place. But we don’t just stop there – we also offer services to help you succeed.
We offer:
- Free Review of existing paperwork
- Terms of Trade
- Credit Policies
- Ledger management
- Staff Training
- Dispute resolution
- Debt resolution
Here at NZBT, we know that it’s more important than ever for our clients to understand and use their legal documents correctly. We guide our clients through the ‘minefields’ of business so they can avoid costly mistakes and come out the other side intact.
If you need any help, we’ll be happy to assist you. Just visit our website to get started!