In Australia it is estimated that there is more than $1.2 billion of bad debt across our country. “Bad debt” is a term used to describe money not paid to a business from another party such as other businesses, contractors, and customers.
With most SMEs already working with shoestring budgets, this can make or break a business. Below are examples of ATP Tax Accountants tips on how your Western Sydney business can avoid bad debts and to receive fast payment for your hard work.
Streamline The Payment Process
The easier it is to pay you, the more likely you will be paid on time. Take the time to set up the right payment structure, such as:
Direct electronic funds transfers
Accounting software like Xero
Information necessary for another party to write you a cheque
When others are able to pay you via their credit cards, they may be incentivised by the points to be gained from their credit card provider.
Get Agreements In Writing
Many SMEs businesses rely on verbal contracts for starting and carrying out a job. Unfortunately, this gives SMEs very little recourse should there be a misunderstanding in terms between two or more parties.
A contract does not require lawyers or notaries, but it does require all terms to be written down and signed off by all parties involved. This reduces risk for everyone.
Create Benefits To Increase Your Reward
No one likes paying bills, but having incentives which reward those who pay on time will go a long way in making sure that your bills make it to the top of their bill pile. You can do this in a couple of different ways:
a) Offer a discount. If a party pays their bill in advance, offer them 5% off of their total bill. This 5% will make sure your books stay on track and this incentive will cost you less than the time and stress than chasing down an unpaid invoice.
b) Charge interest. Also known as the “penalty effect”, as long as you are upfront about the interest you can charge interest on late payments.
Place A Value On Your Time
By conducting a cost/benefit analysis you will be able to determine which unpaid invoices are worth chasing and which are worth writing off. Consider future value as well, such as if it is worth chasing down a contractor for $100 when future business you might instead focus on may bring in substantially more than that unpaid invoice.
No one said that running a business is easy, but ATP Tax Accountants can help ease your burden and improve your financial efficiency. To learn more about how we can help your business grow, contact us during business hours on 1300 829 484 or email us anytime.