Debt collection involves a process where collectors and creditors seek to recover payment from businesses or clients, who are legally bound to repay the money they owe. Like many companies, you may end up extending your credit arrangements to customers, which can result to bad debts. The consequences are even worse if you lack internal mechanisms to chase the debts successfully, thereby incurring considerable losses.
On this article
1. We have outlined the importance of good credit management and collection skills to your company, which include deciding its fate.
2. We have also given the steps of a proper debt collection procedure that can recover outstanding debts efficiently, increasing your cash flow.
3. Furthermore, we have recommended hiring a debt collection agency, if you lack the expertise needed to recover the overdue customer payments for you. The bad debt recovery agencies in Singapore have the skills and resources necessary to reduce the debt burden and facilitates the growth of your business.
Importance of managing bad debt
Nowadays, companies need to pursuit for the bad debts as the market continue to slow down since it is one of the major ways to raise the needed cash. This economic change creates an opportunity for you to go for those receivables.
The main reason why many businesses struggle during economic downturns is running out of cash. However, you can keep your business secure in such times by prioritizing on a successful cash flow management.
Several studies focusing on the growing disappointments in businesses and industries revealed bad debt as one of the major causes for insolvency. Nevertheless, you needed to sell in credit in the present buoyant economy in order to enjoy the following benefits:
• Offering credit facilities can help you perform a larger volume of business
• It can widen your market share
• Many entrepreneurs break or make a sale by selling on credit
• It can also give you a competitive advantage
Nevertheless, you cannot afford to take credit control measures lightly, considering the numerous companies that are mounting with debts every day with the recovery of most of them in doubt.
From recent years, the business conditions have become very volatile, creating problems of interest charges and cash flow that entrepreneurs have never encountered before. Most companies realize that the receivables or debtors on their balance sheet represent a substantial amount of the capital employed.
The impact of unpaid debt
Your business can be having the finest product, the most dedicated workforce, and a superb sale record. However, if you do not receive all payment on time, the business will die. The company tends to finance all unpaid debt, preventing you from achieving your full potential.
Besides, it may force you to borrow money just to fund your sales ledgers rather than using the resource for growth and development.
So, what is the advantage of a good cash collection procedure?
A proper debt collection can thus determine whether a business is profitable or will be forced into bankruptcy because of default and slow payments on outstanding receivables.
Therefore, the two vital and significant factors that can decide the fate of your business are credit management and debt collection.
Debt recovery procedure
We recommend you to use these steps as an escalation process to approach your clients about an outstanding payment. Be aware that Singapore has listed regulations that you must obey when contacting your customers for overdue payment. This procedure has taken care of that, so no need to worry just follow it.
1. A courtesy payment reminder
Contact the customer with a friendly reminder as soon as the payment is overdue via the phone, mail or email. The delayed payment may have resulted from minor issues like forgetting or paying into the wrong bank account. In such a case, contacting them will be enough to make them pay your invoice. Furthermore, you should not forget to include your contact information, banking details, and payment options to make the payment easier and quick.
2. An overdue payment reminder
If the customer is yet to pay and he has missed the next date that you agreed or has made no contact, you are right to contact him, reminding and requesting for the payment.
3. Final notice
After he has failed to obey the term of payment as well as the extended payment dates, it is now the time to email or call him to discuss the overdue invoice and request payment.
4. Try a direct contact
Consider visiting him in person if there is still no response or payment to ask for the outstanding balance. The visit can also help to create a personal relationship with him that could facilitate any future business.
5. Formal letter of demand
In case all your attempts to contact the customer have failed, the next option is to send a letter of demand. You should only do this as a last resort because it can harm your relationship with him.
If some customers have not still paid their outstanding invoice, then consider hiring a debt-collecting agency to chase the money from them.
The benefits of using an agency for debt recovery
Many entrepreneurs agree that appointing debt collectors is the most effective method of recovering cash from bad debtors. In fact, you may prompt the debtor to pay by just sending him a letter advising him that you have appointed a debt recovery expert. Here are some of the ways a debtor collector can benefit you by using the agent to secure payment from defaulters.
• You will definitely save valuable time and resources by hiring a third to follow these debts, allowing you to focus on growing your business
• The primary business of debt recovery agents is to collect debts for their clients. Having said that, you should expect them to use tested and tried methods of debt collection, increasing the chances of claiming your bad debts in full.
• Collaborating with this agency can significantly decrease the amount of money you need to write off annually, as the collector will help you to secure the debts much quicker.
• You also give out a clear message to other clients that the business cannot tolerate bad debts and late payment.
Finally, it is good to note that no business is fortunate from the growing bankruptcy. If your company is having such problems, employing the appropriate debt collection procedure can prevent your cash flow difficulties from escalating further.