“Cash means liquidity and liquidity means cash.” It’s a tenet that’s fundamental to the growth and development of your business. Any business of any size needs a healthy cash flow to grow and thrive. Even huge multinational companies have been brought to their knees by poor cash flow, tying their capital in investments and thereby inadvertently stunting their growth.
As the owners of an SMEs the old adage that ‘Cash is King’ is even more applicable. Poor liquidity can hobble your business by tying up your capital and preventing you from making business choices that are conducive to growth. Being able to buy a cheap bulk order of stock, a piece of productivity-boosting equipment or being able to moving to a better located premises are all huge steps forward, but poor cash flow can tie your proverbial shoelaces together. It can prevent you from paying off your business debt in a timely manner thereby incurring unwelcome charges.
Often, you can find yourself waiting up to 90 days to receive payment from clients and customers, and while a service like cash flow finance can help you gain a proportion of what you’re owed quickly, what do you do if you encounter a customer who just won’t pay up?
You may feel that legal action is your only recourse, but there are some steps you may wish to consider first.
STEP 1. Establish a timeframe for further action
Knowing when and how to take action against debtors, is a struggle many small businesses face. When your business is starting out and you face an unpaid debt (particularly if it’s sizeable), you may find that anger and panic can cloud your judgement so it’s important to calmly and rationally plot your strategy for recovering your debt. Remember that your behavior needs to be exemplary despite the stress you may be undergoing. In all your written and verbal, correspondence your tone must be polite yet assertive without becoming threatening.
Carry out the following steps and establish a timeframe for each that’s appropriate to the size of the debt. A fortnight may be ample time for a debtor to cough up $100 but if they owe you several thousand it may be unrealistic. Usually 30 days is an adequate lead time for a response from your debtor
STEP 2. A polite reminder
It’s entirely possible that your client was busy or had a lot going on in their personal life and merely forgot to make payment, so it’s important to give them the benefit of the doubt. A phone call or a polite letter should motivate most debtors.
If they’re able to pay up straight away that’s great, but should be open to setting up a payment plan with them if they’re unable to. Ensure that terms for repayment are put into writing, signed and countersigned in acknowledgement (as you may need to rely on them in court at a later date).
STEP 3. A final demand
If you haven’t heard back from your debtor after the prescribed length of time, then it’s time to issue a final demand. This should come from either yourself or (better yet) your legal counsel notifying you of your intent to take legal action if the matter remains unresolved.
STEP 4. Legal action
Legal action should always be a last resort but it’s important to do it right. If you haven’t already, reach out to a consumer defense lawyer, who’ll protect your interests through proper legal channels. Avoid dodgy debt collection agencies whose underhanded methods could bring your business into disrepute. When taking your grievance to a small claims court you’ll need to build a case, which is where copies of your letters and signed repayment agreements will be invaluable in getting back what you’re owed.
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