Cashflow is more important than ever right now and you really need to accelerate your cash collections.
You have to make sure you get paid for every single job you do. You simply can’t afford to be complacent.
The most important thing right now is to be clear with your customers about how and when you will get paid. This is more important than the price of the job right now!
You need to review your Terms of Trade/Terms and Conditions and your Payment Processes to make sure they are tight enough.
If you don’t have any written Terms of Trade you need to get some NOW! How else do you expect to get paid for the work if you have no enforceable contract with your customers?
1. Consider different payment structures
✓ Get some Money upfront
Getting a large deposit or an initial payment upfront obviously mitigates your loss to a certain extent.
But just be aware that there are rules in Australian Consumer Law about taking non-refundable deposits. These are only allowed when:
- a buyer is aware of the fee prior to signing the contract
- the amount taken:
- is reasonable and protect a legitimate business interest;
- is in proportion to the business’ costs and time; and
- does not penalise the buyer as being ‘unfair’’
✓ Charge in Stage Payments
Consider whether you can charge for your work in stage payments.
If you can reach agreement on charging in stage payments make sure you get agreement in writing. I can’t stress how important it is to keep a paper trail.
Your Terms of Trade will need to set out what each stage of the work involves and then make it clear what the payment expectations are associated with reaching each stage.
You will also need to reserve the right to suspend services if you are not paid for any of the previous stages.
✓ Change your payment practices
This may be harder with existing customers with existing payment terms but you need to think about this with regards to new customers.
If you currently work on 60 day payment terms for example you may need to consider changing this to 30 days or less.
Make sure this is documented in writing.
2. Have a well drafted set of Terms and Conditions
Your Terms should include as a minimum the following clauses:
The price you have agreed for the services needs to be clearly set out in your Quote /Terms
✓ Payment Terms
How payment can be made (e.g by credit card, PayPal) and when it is to be paid.
Without this, how could you claim payment is late if there was no written agreement about the due date for payment.
✓ Ability to charge interest on late payment
In order to be able to charge interest you need to include this right in your Terms, stating the rate of interest and how it is to be calculated (for example that it is calculated daily, on any amounts unpaid after the payment date).
✓ Debt recovery costs
It costs money to pursue a debt and you want your non-paying customer to pay any debt recovery charges you incur. But there is no right ‘at law’ to collect these fees and so you must have a clause which states that you have the right to engage debt collection services for the collection of unpaid and undisputed debts.
✓ Termination provisions
Consider adding various different termination provisions setting out the circumstance in which you can terminate the agreement without being in breach. For example, where an invoice is overdue and your customer fails to pay an invoice by the due date.
✓ No liability for delay
Especially in light of the recent COVID-19 pandemic it is more important than ever to include a Force Majeure clause in your terms – this should provide that you will not be liable for any delay or failure to perform your obligations if the delay is due to any circumstance beyond your reasonable control.
✓ Ability to suspend work
Consider adding a clause which provides that - if your customers do not pay you by the payment date, you may cease to provide the Services until you receive payment.
3. Be disciplined about your invoices
You need to have a system for invoicing and follow it ..
✓ Map out all stages and billing timeframes for each job
✓ Make sure invoicing is done regularly (at least weekly)
✓ Diarise all payment due dates
✓ Have a system to contact clients with friendly reminders as soon as they are due for payment
✓ Set overdue reminders
✓ If the customer is not responding to you contact a lawyer to assist you with a letter of demand.
4. Have a Strategy for when people don’t pay
You have to be commercial about this and also think about the long term relationship with your key clients.
For clients who simply can’t pay you everything they owe you when it falls due, you could agree some payment terms. For example, allow them a concession to spread payment out over 3 months or 6 months. This is not ideal but if it means you get something it is better than nothing.
Make sure you document this agreement in writing and have systems and processes in place to make sure payments are made on time.
If the customer is not responding to you contact a lawyer to assist you with a letter of demand.
Be aware that you have legal and consumer law obligations when contacting other businesses about debt. To find out what they are, read the debt collection information on the Australian Competition & Consumer Commission (ACCC) website.
NOTE: at the time of writing this article (April 2020) the Australian Government have put in place Temporary relief for financially distressed businesses.
A temporary increase in the threshold at which creditors can issue a statutory demand on a company (from $2,000 to $20,000) and the time companies have to respond to statutory demands they receive (from 21 days to six months).
Similar changes in relation to bankruptcy proceedings.
If you need help with your Terms and Conditions, with recovering debts or any other commercial legal issue please do not hesitate to contact me.