There is no question that in light of the current global financial crisis, many businesses are examining ways to improve cash flow.

Debtor control is fundamental – there is little point reducing expenses and increasing sales if the invoices for those sales go unpaid.

Effective debtor control begins with the debtor’s initial contact with your business. Credit terms must be settled up front and a contract (it needn’t be complicated) entered into that clearly states those terms and the consequences for not adhering to them. The contract may include a guarantee and indemnity from the directors and shareholders of corporate clients and, where appropriate, security in the form of a charge or bill of sale.

Many businesses don’t have written trade terms and many of those that do ‘adapt’ them from another business and may not have tailored them to their particular industry and needs.

Having written trade terms aren’t enough though: the contract must then be enforced. Applying terms inconsistently will give rise to uncertainty and a customer expectation that, regardless of what is written in the contract, allowances will be made.

In the worst case, businesses will require the assistance of a lawyer to enforce trade terms and to recover bad debts. Ordinarily, when clients come to us, they will have already forwarded several letters of demands to the debtor owing their business money and will have received no response to those demands.

In many cases, receipt of a letter of demand from a lawyer is the first time a debtor will take the matter seriously and pay the outstanding account or enter into an arrangement for payment.

In any event, the demand itself is a necessary prerequisite to the issuing of Court proceedings, be it through the Minor Debt system (where the amount owing is less than $7,500) or through the Supreme or District Courts.

Inviting your questions and comments.

Michelle Lember
Partner
Lember And Williams

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