Biggest obstacles small businesses face during debt recovery

Successfully running a small business (or any business for that matter) is an impressive feat and challenges can be frequent, and testing.

Yet through obstacles like these, business directors gain valuable learnings and insights into consumer behaviour, their market, and business in general.

One area where small businesses often run into hurdles is during debt recovery. Healthy cash flow is instrumental to running a successful small business, with the power to turn a struggling operation into a happy one.

In this blog, we explore some of the biggest obstacles that Australian small businesses run into when collecting debt.

1. Clear systems and expectations

Small businesses are known for moving quickly to try and hit the ground running. Often this comes at the expense of critical details, such as setting up a clear and streamlined way of doing things.

Taking the time to create internal processes and communicate these clearly with your team will ensure everyone is singing from the same song sheet.

It is also important to build and clearly communicate your external policies with customers, such as payment terms and cancellation policies. This ensures there are no gaps in the system and everyone is clear and happy with the arrangement.

What can you do about it?

  • Take a moment to slow down and plan processes out – you don’t have to do everything at once.
  • Ask the team for their input. They may see things you haven’t considered and will be more likely to adhere to the policies if they’ve had a say in crafting them.
  • Make one person in the team responsible for creating processes, saving them in one place, and keeping track of the most up-to-date versions.
  • Engage a professional to draft your terms of trade documentation. Terms that are customised to your business will stand you in the best stead when it comes to debt collection. This can encompass everything from a credit application form to personal guarantees and indemnities.

2. Time management and resource

Another common small business debt recovery problem is not having the time to follow up on debts, despite the best intentions.

It can be easy to procrastinate because you are either too busy or would honestly rather be doing something other than chasing up debts. The days and hours after a debt falls overdue are critical.

We should also remember that trying to do everything yourself is often not the most productive use of your time. If you are not adequately resourced for prompt debt collection, now is the time to sort it out.

What can you do about it?

Carefully plan and build habits. Assign a couple of hours every week to go through your outstanding debts and take necessary action. Taking these small business tips for productivity into consideration may also free up some time in your day.

Use the reminder notice automation in your invoicing systems such as Xero or MYOB or set up automatic calendar reminders for yourself to chase them up.

Assign one person to look after accounts receivable so they can take ownership of debt recovery.

Use a professional. Outsourcing to our team of debt recovery experts at EC Credit Control can offer a very nimble solution for your small business.

3. Difficult conversations with debtors

It can be uncomfortable having tricky conversations, especially if it’s not part of your everyday practice. There is also the added worry of potentially damaging relationships and losing rapport with your customers, which many find a challenge of debt collection.

It is also common within small businesses to lack experience in conflict management or not be fluent in the type of language to use. Many of our small debt collection clients describe the feeling of having ‘put their foot in it’ when it comes to their debt recovery conversations. They describe having felt relief once they handed the problem over to EC Credit Control’s team.

What can you do about it?

  • Upskill someone in the team on conflict management. There are often courses or workshops which can be found both locally and online. These can lead to a greater feeling of confidence to hold the conversation, negotiate a result, and hopefully keep relationships intact.

  • Prepare for the conversation. This means considering how the call might go, what questions/points might come up, and plan a range of payment options before entering conversations.
  • Use a professional. Our debt collection team at EC Credit Control are experts at holding even the trickiest of conversations. Our team trains regularly and practices their skills every day of the week.

4. Customers going out of business

The reality is that your customers and their businesses may be declared insolvent without much warning. While customer bankruptcy is not an everyday occurrence, it is especially relevant to consider in the context of today’s COVID-19 pandemic and economic environment. Business closure can be particularly painful if you have customers with large balances owing.

Whatever the reasons small businesses fail, if this has happened you will want to ensure your chance of debt recovery is as strong as possible

What can you do about it?

  • The process of debt collection during insolvency differs if you are a secured creditor or an unsecured creditor. The Australian Financial Security Authority has clear information on how to find out if someone is bankrupt and your rights as a creditor, here.
  • Reduce your risk by keeping clear records of all invoices, customer documentation, and notes of your contact with them. Invoice for your goods or services quickly.
  • Contact the receiver, liquidator, or administrator without delay.
  • Use a professional. At EC Credit Control we have been navigating the world of debt collection since the aftermath of the 1987 stock market crash. You can avoid many of the pitfalls early on by loading your debts with us, and we can also help you be prepared in the first place by having strong terms of trade in play from the outset.

5. Tracking a large portfolio of customers

If your business sells to a large number of customers and offers them credit terms, often the sheer scale of your customer base can be the biggest debt collection challenge your small business faces.

With more people to follow up, it can become real hard work to reconcile your payments and keep track of all the outstanding debts. In our experience, this often results in customers and invoices slipping between the cracks. This can easily happen either by forgetting to firstly invoice them, or failing to realise they have fallen behind and following up.

Whether you run an accountancy practice or a lawnmowing business, you are going to want to effectively manage each customer on your books with care.

What can you do about it?

  • Again, making one person responsible for accounts is a great way to ensure nothing is missed.
  • Clear processes and systems (such as robust terms of trade) are an invaluable tool when you are trying to tackle accounts receivable and debt collection at scale. Having automated reminder systems within your invoicing system is again a must also.
  • Ensure your debt collection process follows strict timelines and includes a clear process for following up and escalating the debt. You can learn more about this in our free guide to debt management.
  • Use a professional. Any debts that go beyond the 90-day mark should be escalated to our team of debt collection experts for a greatly increased chance of debt recovery.

Ready to make your debt recovery process easy?

Take one of the big obstacles off your to-do list by working with a complete credit management specialist. At EC Credit Control we are about looking at the whole picture and strengthening your credit systems so that you barely have need of debt recovery at all.

We work with businesses of every size, from small business start-ups to established companies and large-scale corporates.

No matter your operation, set yourself up to be a successful small business by engaging the professionals.

Find out how we work and why we make the debt recovery and credit management process easy.

We’re here when you need us

We want to help you maintain healthy cash flow and are genuinely here to help you. Simply fire your questions to our debt management team, or get right to it and load your debts online today.

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