Many businesses in Australia and elsewhere would have experienced overdue accounts. The outstanding client debt adds up as one fails to collect the amounts. Is it wise to use the services of a debt collection agency? How effective is the debt collection system that the collecting agencies employ?
Take quick action
For these businesses in Australia, debt recovery is the focus. The main thing to do is to initiate the action as quickly as possible. The faster the action occurs, the better is your chances of getting the money. Here is the breakdown of the survey that shows recovery of money over the time:
- Within 2 months – 80% chance of recovery
- After 6 months – 51% chances of recovery
- 12 months – 25% or less chances of recovery
If your business has to recover money pending in bad debts, you have to use processes that have proof of achievement.
Various methods used by professional agencies
Use of professional agencies makes sure that using a variety of methods increases the chances of recovery. These use repeatable processes that have approval from the government. Many action paths emerge through the working of these professional agencies including the following:
- Dispatch letters for debt collection
- Service of complaint
- Demand through a phone call
- Conduct search of the business
- Make arrangement for payment
- Issue a complaint
- Use legal system to issue judgment
In most cases, when the payment is more than 60 days overdue, one must initiate action to collect the outstanding amount.
Impact on the cash flow
Cash flow is the net change in the financial status over two consecutive periods. When the cash that flows in is more than the money that flows out, the cash flow is positive. Every business aims to keep the cash flow positive so that they are able to conduct the business in a better way. It helps mitigate the costs of paying salaries as well as the operating costs.
The incidence of outstanding debt will have an affect the cash flow. A scenario of negative cash flow occurs that prevents the efficient functioning of the business.
Preventing the bad debt
One of the keys to preventing negative cash flows is to stop the bad debt from occurring. The professional credit management agencies will help you identify the key areas where you must focus on. These would include the following:
- Terms of trade
- Background checks
- Credit insurance
The simple step of using the correct terms of trade helps greatly. You have to clarify responsibilities and be explicit in your expectations when you join with another concern to do business. This helps clarify the situation at the beginning itself.
Conduct background checks by visiting the trade offices and government agencies. This check on the financial and business position is most important. If you find that the business partner does not have a good standing, you must choose someone else. By taking this step at the beginning, you avoid losing more money in the long run.
And lastly, you can take insurance against insolvency liquidation, non-payment, and bankruptcy. This helps to an extent. You must take this step at the beginning when you start the partnership with another company.