“Bad debts have always been there. There’s always been those recidivist offenders that don’t pay and say business in tough. They tend to use that excuse far more when the economic climate is more difficult, but they’ve always been bad payers.”

In the market that we are currently experiencing in New Zealand, and globally, everyone is noticing a change in the debtors’ positions, and I don’t see it letting up any time soon. Now more than ever, it is important to get debtor’s processes up to date.” notes Andrew Kingstone.

Andrew is the managing director at Gravity Credit Management, and a Chartered Accountant by trade. He notes that although there is a long list of possible causes, he keeps seeing the same one’s surface time and again.

Business owners are increasing finding that debtors are more inclined than before to allow their accounts to become overdue. Bad debtors accounts places cashflow strain on businesses and increases the amount of administration required when business owners would prefer to focus on getting on with business and are already struggling with staff capacity.

Not keeping a watchful eye

According to Andrew in many cases where debtors accounts become an issue, one of the most common causes was not noticing early on that there is an issue. Many businesses don’t pay attention to their debtors up until the point where they are facing financial difficulty, or their account is beyond agreed terms.

Updating terms and conditions, keeping up with legislative changes

It is too late to see how much water your terms hold when you want to enforce them. “When I get approached by any new client, one of the first things I’ll do is look at their terms and conditions and give suggestions around it. I’ll look at a copy of their invoice to ensure the required information is present and correct,” explains Andrew. “I also visit the client to discuss and understand how things work in terms of the process to get from the invoice, through to collection.”

Enforcing terms and conditions and personal guarantee

While collecting debts we see often where debtors draw a line through the personal guarantee clause in the agreement. In this time and this market, you need to think very carefully whether you want to forego that now, because you may not be able to collect on it later.

Resolving disputes timeously

Here Andrew notes that, “You don’t want to wait until the 20th of the month to have that discussion. You should intercept that problem very early on, so that when the 20th of the month comes, there’s no problems with payment.”

When to seek assistance

Keeping a close eye on debtors is usually best done by the business itself as it forms part of maintaining the customer relationship. Andrew has however found that once debtors fail to meet the terms set out in the terms of trade and credit application, and the relationship is at risk, the quickest and easiest solution is usually to outsource the collection to an impartial party like a debt collection agency.

Getting a collection agency to assist with debt collection frees up time and energy that the business owner, or employees, could be spending more productively. According to Andrew quite often the time spent trying to recover bad debt just doesn’t justify the money that comes in. At the same time the relationship between the company and the debtor is not compromised since an impartial third party assists to manage payment options and terms.

Why business typically don’t want to get debt collectors involved.

Most commonly businesses fear the cost of debt collection. Business reputation is very important, and no one wants to end up in the press for all the wrong reasons, least of all for engaging with an agency which engages in threatening or unprofessional conduct. We treat your debtors as our own as ultimately, they are.  The other concern is only a true concern when credit conditions don’t allow for collection fees. Even in instances where collection cost would be deducted from the moneys collected, Andrew notes that, “In most cases the cost of the collection is still preferential to the cost of valuable time and resources that would otherwise have to come from the business.”

ALSO READ: Why do my invoices get rejected and what does that mean for my business?

Andrew has assisted hundreds of clients with debt collection and him and his team at Gravity Credit Management services a client base of national and international corporations such as trading banks, internet service providers and retail agencies to collect outstanding debt.

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