As the operator or owner of a small business, the main concern should be running a business and not being inconvenienced by any outstanding debts. A majority of small businesses are started with owners who are both hard-working and passionate. Such small businesses also deal with specific services or products only. However, the major challenge usually lies in lack of experience by most SMEs to effectively and efficiently manage accounts received. This is normally the most critical yet very confusing aspect of any SME. Generally, the earlier the owners of SMEs can refer to their debts, the higher the chances of them to effectively recovering the debts.
Debt recovery for SME
Good cash flow is important for the survival of any business and for it to flourish. This is regardless of whether you are a limited company or a sole trader, if cash flow is not closely monitored there is bound to problems. Placing robust procedures is a sure way of reducing the risk of having to write invoices off entirely and commence debt recovery proceedings.
The following are some insightful debt recovery tips for SMEs that have been formulated through experience and extensive research:
• It is important to ensure that the payment terms or credit policies of any SME are very secure (as tight as possible).
This can be achieved by clearly defining, understanding and constant implementation by each and every person concerned. The documentation of an SME should clearly set out the terms and conditions upon which they are extending credit. It is advisable that any quote for work to be done should be confirmed (in writing) or at least signed by the client.
• It is critical to get sufficient information about a client as is legally possible.
This is in a bid to know as much as you possibly can about the person you are extending credit to. An account or credit application form that is drafted in the correct manner is equally important. SMEs ought to obtain an independent and reliable assessment of any prospective client’s credit rating prior to opening an account or performing any work for them.
• It is vital that SMEs know who exactly it is that they are dealing with.
This is because the biggest challenge experienced in debt recovery is not knowing who exactly it is that an SME is chasing after. This entails enquiring about the legal entity of a client i.e. is it a partnership, a sole trader or a limited company. In the case that it is a sole trader or partnership, SMEs should ensure that they have the full names of those trading as The White Horse. If this is not done then a SME is guaranteed to encounter challenges in debt recovery.
• SME should note that time is always of the essence especially when it comes to debt recovery.
SMEs should avoid wasting time via means that are inefficient in trying to recover their debts. Similarly, they should never allow debts to die of old age so to speak. It is recommended that any SME be on the neck of any debtors that appear to be uncooperative, awkward or problematic.
• SME should have a default recovery procedure that is characterized by a series of reminder letters.
However, it is equally important for the system not to have excessive warnings. A couple of letters and a statement should suffice as adequate y all standards. The letters should be concise and clear nonetheless. In addition, they should clearly explain the consequences of failure to service a debt. If pay is still outstanding, the issue should be promptly referred to the SME’s debt recovery solicitor.
• It is advisable not to go all guns blazing on clients that owe debts.
This is because a majority of clients will actually pay on time. A gentle reminder should be adequate. Debt recovery should be an escalating process. SME should begin by making polite calls when their invoices are due, the money is theirs and gives them every right to do so.
• The devil is always in the detail.
The letters from a SME is bound to have prompt effect on the person reading them. If it is not properly structured, it might end up being given the cold shoulder and consequently thrown to the bin. SMEs should keep in mind that they are in direct competition with other creditors of their client. That said, they should make the client understand that they are very serious as regards to money they owe. Each and every detail in the letter that is addressed to the client owing the debt should appear professional and should be perfect in addressing the issue.
• SMEs should strive to get a promise to pay if getting immediate pay is too ambitious (depending on the situation on the ground).
What is important is to get some kind of commitment from the client. Afterwards, keenly monitor the situation to ensure that the client does not go back on their word.
• It isn’t crime to owe money in such difficult financial times and SME should also recognize this hard fact.
Therefore SMEs should try to be courteous when dealing with the clients that owe them money. Developing a good relationship should be the goal and not losing their temper. This facilitates acquiring useful information that might assist along the way in case payment is not received. Remember that manners never cost anything.
• SME should keep good records of all their transactions with clients.
This is factor of safety that guarantees that they are well placed in case push becomes shove and they are forced to pursue the debt issue via a court process. This will simplify the case and will greatly increase the probability of attaining success. SMEs should therefore properly clear records of the debt history and all the transactions related to clients.
The above is a comprehensive guideline with easy to follow tips that will guarantee any SME in Singapore to recover their debts or even totally avoid problems related to debt recovery that are becoming more rampant. Debt recovery for small businesses is very important for them to prosper and move forward.