COVID-19 has spun business on its head. While some businesses are powering on, others are scrambling to survive.
Importantly, a customer’s obligation to pay for goods and services that you have provided has not changed. Your process to collect debts should adapt if it needs to, but it should continue. Overdue invoices are an unnecessary cash flow burden that few businesses can afford to carry right now.
In a recent webinar [15 April 2020], the debt collection specialists from ARMA shared their expertise on how creditors can work with their customers to get paid during COVID-19. (You can watch the full webinar at the bottom of this page).
ARMA’s CEO, Andrew Smith, and Head of Sales, Eddie Smith, have hundreds of conversations each day with creditors and their debtors, and offer this advice:
- Be honest, open and compassionate with customers
- Mix up your communication channels
- Communicate frequently
- Use pre-legal options such as demand letters
- Seek extra protection on your credit
- Future-proof your collections process
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Be honest, open and compassionate with customers
Suppliers want to maintain strong relationships with their customers. But relationships can deteriorate when debtors prolong payment times without agreement. As a creditor, be honest with your customers about your payment expectations—it permits your customers to be open and honest with you in return.
For example, start a debt collection conversation the same way that you hope someone would speak with you. Ask your customer how they have been impacted by the current pandemic situation. Listen, and share your understanding. Then let your customer know that you need to understand how they intend to start paying your overdue invoices.
Additionally, be prepared to accept payments in instalments and to negotiate ongoing credit terms. This way, you map a way forward for your customer to repay outstanding invoices. You also put more protection around future credit that you may extend to them.
Mix up your communication channels
It’s not business as usual for most of us. Your customer may close their office and work different hours from home. Try contacting your customers via text message, email, and phone. Pay attention to how your customers are responding, then adapt to their preferred channel, even if it’s not your preference.
For example, while Andrew likes to call debtors and speak with them over the phone, he sees a high response rate from text messages as people reply after hours. Give people a little extra time to respond, as your customers may also be looking after their children at home during the day.
The business payment landscape is changing rapidly, even daily. As stimulus packages start to roll out, businesses that were hanging on to their cash last week will soon have cash on hand to pay their bills.
Therefore, don’t be shy about staying in touch with your customers and politely pursuing the payment conversation. As Andrew points out, the purpose of the stimulus packages is to keep businesses trading and that includes paying their bills.
In fact, your communication can be really helpful to customers right now, especially if you can share how they can access stimulus packages available to them.
You can download a one page summary of Australian stimulus packages here: Stimulus and Assistance Guide for Individuals and Businesses.
Remember, communicate consistently and politely, don’t harass or intimidate. For more information on debt collection guidelines from the Australian Competition and Consumer Commission (ACCC), read our post here.
Yes, you can still send a demand letter
While the Australian Government has temporarily changed debt collection laws as a coronavirus response, pre-legal avenues are unchanged. In fact, they are more important than ever, says Eddie.
Regardless of COVID-19, paying a bill when it falls due it still a requirement of your credit terms and the law. (Some companies are freezing billing on mortgages, energy etc.)
As debt recovery experts, Andrew and Eddie know for a fact that invoices become harder to collect as they age. Their advice is to bring forward your threshold for sending a demand letter; if you used to wait for 90 days overdue, bring it forward to 60 days or sooner.
At ARMA, they have changed the wording of their standard demand letter to assure debtors that there are extra options for them to settle their account.
Try wording such as:
‘We understand that your business may have been affected by COVID-19, and we can provide you with additional options to assist your payments throughout this period.
We request that you contact our customer service team on <<Phone Number>> to provide further information to enable us to assist you.
Failure to contact us will result in this account proceeding to our debt collection agency.’
Seek extra protection before extending new credit
If you don’t already have these measures in place (don’t panic, many businesses don’t), consider adding these conditions to your new contracts so you have more options to recover any debt if a customer’s business fails:
- Personal Guarantees, Director Guarantees: If your customer fails, your business can pursue the personal guarantor or business directors to recover any losses.
- PPSR: A national register where you make a claim to retain an interest on goods that you have supplied but not yet been paid for.
- Caveats: Claiming an interest in a debtor’s personal property as security over credit you have extended.
- Lodge a credit default: List a default on a customer’s credit report with a commercial credit bureau.
- Costs Clause: Include a clause in your contracts stating that your debtor is responsible for specified costs you incur to recover the debt.
In Eddie’s experience, creditors hesitate to ask their customers for these assurances, but his advice is simple: Have the conversation upfront.
It’s not too late to go back to existing customers and negotiate new terms. Help your customers to understand that you want to keep trading them but need further security if their payment behaviour has been deteriorating. You’ll be surprised to know how many customers will accept greater controls so they can keep trading with you and avoid going on credit hold or being referred to the courts.
Seek legal advice on any contractual changes.
Future-proof your collections process
Learn from what’s happening now and put more safeguards around your debt collection for future uncertainties.
- Enhance your capacity to communicate digitally with your customers.
- Update your customers’ contact details, including business identifiers such as ABNs and business addresses, so that if you need to pursue customers, you know how to find them.
- Improve your overdue invoice tracking system so that you have high visibility of your ageing invoices.
- Automate the collections process as much as you can so you create time for meaningful conversations and customer relationship management.
- Rigorously monitor the financial health of your customers with services like credit risk monitoring. Don’t just rely on your customer’s word.
- Review your contracts and terms and conditions to get better security over your goods and services.
- Be prepared to stop supply if customers exceed their limits or terms.
Watch the full 1-hour webinar below. (Note that offers included in this webinar expire 30 April 2020).
Get started on ezyCollect’s credit management and accounts receivable platform for free: