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Biggest obstacles small businesses face during debt recovery

Successfully running a business is an impressive feat and challenges can be frequent, and testing.

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

One area where you may run into hurdles is during debt recovery.

Healthy cash flow is instrumental to running a successful business, with the power to turn a struggling operation into a happy one.

In this blog, we explore some of the biggest obstacles that businesses run into during debt recovery.

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 that everyone in the organisation can follow.

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 so that 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 and Conditions of Trade documentation – something that is customised to your business will stand you in the best stead when it comes to debt collection and 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 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 your customers for debt collection. 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.
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3. Difficult conversations with debtors

It can be uncomfortable having tricky conversations, especially if it’s not part of your everyday practise. 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 business 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 and have felt relieved once they have handed over the problem to EC Credit Control’s team to navigate.

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, that lead to a greater feeling of confidence to hold the conversation, negotiate a result, and hopefully keep relationships intact.
  • Conversation preparation – consider 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 – they train regularly and practise their skills every day of the week.
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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 and can be particularly painful if you have customers with large balances owing.

Whatever the reasons small business 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 some clear information on what this means, and what to do if you are owed money here.
  • Reduce your risk by keeping clear records of all invoices, customer documentation and notes of your contact with them, and invoicing 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 and Conditions 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 really 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, 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.
  • 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.

Sign-up with us If you have invoices 90 days past due - we can help. Debt recovery is our specialist area. Our team are experts in getting results so don't hesitate to load your unpaid invoices for resolution now.

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 These are just a couple of things you can implement within your business. 

If you are noticing changes in a customer’s payment behaviour, we can help. Let’s chat through your options in more detail.

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