The 5 Debt Collection Myths: The truth explained
Over 62% of small businesses experienced late or unpaid invoices in the past year according to recent research by cloud accounting software giant Xero. These outstanding invoices have, in turn, a follow-on effect: 38% of those surveyed attributed late payments as the reason they had to delay their own payments to suppliers.
The process of debt collection, then, is something many businesses have as a day to day priority to make sure they are paid on time, however myths persist.
Indeed, the research would come as little surprise to those in the trenches of managing their business’ cash flow, with many Australian businesses folding as a consequence of unpaid invoices. Xero’s Paying Down to Zero report with CoreData surveyed 500 small businesses and sole traders across Australia in March 2017, and revealed close to 25% of businesses estimate they wouldn’t have the operating cash flow to survive a single month if all the invoices currently owed to them were left unpaid. Worse still, 62% of the businesses surveyed wouldn’t survive more than three months were the invoices left outstanding.
So how best to collect your debts?
A simple way to save you the stress and resources of chasing unpaid invoices is to hire a professional debt collection agency. There are plenty of myths around these companies, specifically around how they operate and what they do. When it comes to this topical matter, it’s crucial to sort the facts from the fiction.
Myth #1: You’ll lose your customer.
Not true. If anything, it means you are free to discuss only the goods and services with your customers and leave outstanding invoices in the hands of the professionals. Employing a reputable debt collection agency sends a strong message that you mean business when it comes to your accounts receivable. It’s crucial that you work with a debt collection company that is best aligned with your business. A good debt collection company is ethical, efficient, effective and an extension of your business.
Myth #2: Just for big companies
Also not true. More and more SMEs are engaging debt collectors due to the current state of slow payers in Australia. They, more so than big business, don’t have the time or resources internally that chasing outstanding invoices requires. Outsourcing this time consuming task to a professional debt collection company means they can focus on doing what they do best: collect debts. Debt collectors can often offer extension on payment, an instalment agreement and sometimes, even both. This means that money is coming through the door – and this money could mean the difference in making or breaking your business.
Myth #3: The debts aren’t big enough
If debts are big enough to impede your cash flow, then they’re big enough to ask a debt collection agency for help. Consider the time and resources you are spending chasing up these debts.
Myth #4: Debt collectors – you can’t afford them.
It’s important here to look at the real cost of not having a debt collector. What will it cost you NOT to recover those invoices? Some debt collectors work on a ‘no collection no commission’ arrangement which might better suit your business. Whatever the cost, it’s important to consider it as an investment, not an expense ….especially when you consider the statistics unearthed by Xero’s survey. It’s important too that your terms of trade, from the beginning, are clear and assign all costs of debt recovery, including legal action, to your customer.
Myth #5: They’ll give you a bad reputation
Many people have pre-conceived, although outdated ideas about what debt collection companies do. They are though, in reality, far from the general stereotype. It’s their business, after all, 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.
Forming a strong professional relationship with a professional debt collection company will assist you to develop and implement systems and processes that will help you limit the likelihood of invoices becoming overdue – leaving you to focus on the business at hand.