“Number one, cash is king… number two, communicate… number three, buy or bury the competition” - Jack Welch, ex-CEO of General Electric, when asked about his keys to success.

Jack’s number one is spot on: getting, maintaining & using cash is critical to the success of any business. A profitable business can quickly fail if the cash flow doesn’t match the balance sheet. A big part of cash management is making sure you’re paid on time, every time. Here are our five fundamentals for dealing with debtors:

1. Tough T&Cs: Your Terms and Conditions govern your relationship with your customer, so it’s vital they tick all the important boxes (e.g. what goods/services are being supplied and at what price, payment terms, security, defects/warrants, IP etc.). See our blog post titled “The Fine Print” for more info.

2. Perfect the PPSR: If you’re supplying goods on credit, the odds are you will want to retain ownership of those goods until you’re paid – this can help keep you safe if things start to fall off the rails (e.g. customer refuses to pay, becomes insolvent etc.). To do this properly, you’ll need two key things: 

·       Correctly worded retention of title rights in your T&Cs; 

·       Valid, on-time & perfected registrations on the Personal Property Securities Register.

The PPSR laws are riddled with technical requirements, which if not met can have disastrous outcomes, so it’s critical to approach this task carefully.

3. Predict Poor Payers: Some business owners base their cash flow projections on the assumption they’ll receive all customer payments ‘on time’. This can be tempting as it can make the future look brighter, but in reality most businesses will have some late payers. To accurately budget your cash flow it’s important to include realistic projections of debtor collection dates, whether based on historic performance or reasonable, commercial estimates.

4. Demand Delinquents: Following up unpaid accounts in a formal way sends a message that you’re serious about getting paid. Have a template demand letter on file and use it mercilessly. For bigger businesses, train your accounts staff to issue demands and attach copies of unpaid invoices automatically after a suitable past-due period (e.g. 14 days).

5. Lawyer Up: For long overdue accounts (e.g. 60+ days), sometimes all it takes to finally get paid is a legal letter of demand. The escalation from your in-house demand to a legal demand made by a lawyer, coupled with the threat of litigation, shows increased seriousness and is often enough to motivate payment.