If you’re a small business owner, whether you are a tradie, a photographer, accountant or life coach, getting paid is the most important part of your business – and sometimes the most overlooked.
As a lawyer, I have chased a lot of bad debts for clients that, had certain steps or systems been put in place by the business owner, may not have needed to be chased to court.
Here are the most effective practices I would like to share with local small business to help minimise your bad debts:
1. Start with a written quote
A number of tradies work off oral quotes with the intention to put them in writing to the client, but when this does not happen, clients can often make excuses about payment. Follow up all oral quotes with either a quick text message, asking the client to confirm by replying “Yes, go ahead” or an email quote through an affordable app like “Invoice2Go”.
2. Ask for a deposit
A percentage deposit to commence work is an excellent way to ensure that the client is invested and committed to pay for your services. Whilst it can be tedious to organise if you are used to seeking payment at the end of the work, it is a valuable way to see if a client even has funds to get started. For larger invoices over $10,000, this is particularly important.
3. Implement short payment period terms
I used to have my payment terms set to 7, 14 or 30 days. I have found that this tends to lead clients to put it lower on the priority list and often forget to pay by the due date. Once I changed my invoice terms of payment to “DUE NOW” as the work has been finished and delivered to the client, I have found the majority of clients pay on or shortly after the invoice date. If a client has not paid within 30 days, always call them personally to offer them different payment options, like a payment plan. Getting paid in instalments is still getting paid.
4. Set up manual or automated follow-ups
The longer your invoice remains unpaid, the less likely it is that you will get paid at all. Regular reminders are an effective way to ensure payment is made. Issue written reminders at 5 days, 8 days, 14 days, 21 days and 28 days post invoice date. If you suspect the client is not answering your calls, call from another number. You will often find once you speak to them personally and have a friendly but firm chat about how unpaid invoices affect your bottom line as a self-employed small business, the client will pay.
5. Engage a Lawyer
If a promise for payment has not been met after 2 months, the longer the debt remains, the less likely you will get paid. Consider withdrawing credit from the client if they regularly engage you and discuss recovery options. The most affordable option is to give a list of bad debts to a lawyer and have them call the clients to chase the debts before issuing each bad debtor a letter of demand. Many invoices are quickly paid after the phone call or letter of demand. If these steps are not fruitful, the lawyer can file a Statement of Claim on your behalf in the Local Court. The procedure is more cost effective than you might imagine, and I have managed to get a client repaid $12,000 after 6 years through this process.
If you are a local small business having trouble getting paid, Fresh Legal Solutions offer low fixed fees to chase your debts for you.
Call Liesel on 0450 106 079 or Email liesel@freshlegal.com.au for a free chat about your business situation, and visit https://www.freshlegal.com.au/ to learn more about Fresh Legal Solutions’ fixed-fee approach to all legal matters.