It’s time to talk about cashflow and your debtors.

Many small business owners are finding it increasingly difficult to manage their debtors. With payment times in Australia being some of the longest in the world, it’s more important than ever for small business owners to take proactive steps to protect their cashflow. But, let’s be honest, no one likes making those phone calls.

So, before you need to make that uncomfortable call, let’s look at some simple steps you can take to avoid debtor issues:

• Perform credit checks on prospective customers to identify any red flags
• Know who you are dealing with – a quick ASIC search can help
• Get your contracts water tight and in order with clear payment terms and consequences for late payment
• Go electronic and get your invoices out quickly, and automate payment reminders in your accounting system
• Make paying easy – introduce credit card payment abilities – you can always pass on the fee – or register for a direct debit facility.

But, from time to time, you may have no choice but to make a call to get your invoice paid. Here are three simple steps to ensure your phone call results in a debt paid.

Step 1 – Preparing yourself to make the call

Before calling make sure you have all the relevant information – invoice details – number, what was done, amounts owing, your payment terms, previous attempts to collect and so on, as well as the contact name and phone number.

Step 2 – Actually making the call

It’s so important to be confident and identify yourself clearly and confirm that you are speaking to the right person who will authorise payment. If no one answers, leave a message or send a follow up text but don’t necessarily indicate  that the call is about an unpaid debt.

Stay as calm and professional as you possibly can, try and not get too emotional. Be prepared to listen, try not to argue or judge, stay focussed in your endeavour to recover your debt.

Never underestimate the power of silence at your end. Use it to put the burden of conversation back onto the debtor. For instance “I need your payment no later than the end of the month, as you are past our agreed trading terms.” Then pause. Don’t say another word. You are applying pressure in the most potent way possible to get what you want at the end of the call – which is an agreement to pay the invoice.

Step 3 – Getting the debt paid

Once you have established payment is overdue, ask for payment in full. If you have an EFTPos machine, offer to take a credit card payment over the phone then and there. If that is not possible, ensure you get a confirmation of when payment will be made. Make sure you follow-up this agreement in a letter or email, as if payment is not received you have a trail of your communication if you have to take further action.

What should you do if they can’t pay in full? Offer up a payment plan. Start with offering to break the invoice up into two or three payments with firm dates. Suggest weekly or bimonthly payments, as opposed to monthly payments, as this will help your cash flow and also get the debt paid off and, possibly more quickly, but also show you are empathetic and supportive to their predicament.

SMS Reminders

No one likes picking up the phone and calling debtors, its uncomfortable and awkward. So you can try a number of things first. Sending statements and reminders via email before calling, can be the prompt a forgetful customer just needs. Phone calls are more unpleasant than snail mail or email, but usually get a more immediate response, so don’t avoid them. Some businesses are now using SMS reminders with overdue debtors, which do tend to have a higher success rate in prompting payment than email reminders – inboxes are getting busier and busier, your reminder email can get lost in traffic.

The fastest way to resolve a cash flow crisis is to call the people who owe you money.  … but the reverse also applies. Do you owe money? To free up some cashflow, perhaps reach out to your suppliers and arrange suitable plans.