The small business specialists
Phone: 13 12 49
Manage your credit effectively by creating policies and procedures covering:
If you provide credit to customers it is essential to put the terms and conditions in writing. This will help to minimise payment disputes and ensure you can effectively manage your finances. Seek legal advice to ensure that your terms and conditions protect your interests and are enforceable.
Terms and conditions should:
It is good practice to have customers sign acceptance of your terms and conditions before providing any goods and/or services.
TIP: Providing credit to customers can be risky. Minimise your risk by developing a credit application process or consider alternatives to offering credit.
Invoicing on a regular basis will help you maintain a healthy cash flow. Invoices should clearly state details of the goods and/or services, the amount owing, the due date for payment and available payment methods.
It is important to know the difference between an invoice and a tax invoice.
If your business is not registered for GST, your invoice should not include a taxable component and should be referred to as an ‘invoice’. However, if your business is registered for GST, the invoice should state the GST against each item and have the words ‘tax invoice’ included.
Monitor debtors (those who owe you money) closely and act quickly when payments are late.
TIP: If you have extended payment terms, consider providing a reminder to your customers before the payment due date to ensure they remember to pay on time.
Not being paid for the goods and services you have supplied will impact on the cash flow and profitability of your business. Establishing a process to deal with non-payment and recover debt is critical; however it is also important that it allows you to maintain a good relationship with customers.
Consider the following options:
Get in touch with your customer
Contact them as soon as their invoice is overdue to determine whether they have a valid reason for not paying. Try to negotiate a revised deadline for them to pay
Send a letter of demand
If you still don’t receive payment, consider sending a letter of demand outlining the amount overdue, the deadline by which you expect payment and the action you will take if they fail to pay on time. Keep a copy of the letter and send it by registered post, to provide evidence if you need to make a claim in court. You can create your own letter of demand or download and modify our sample letter.
TIP: It is illegal to use methods that harass, coerce or mislead people about their debts. The Australian Competition and Consumer Commission (ACCC) have useful information about debt collection and your legal obligations.
If a customer has not paid as the result of a dispute about the performance or supply of goods and services you may consider using an Alternative Dispute Resolution (ADR) service. ADR provides a range of options to settle a dispute without going to court.
Hire a debt collector
A debt collector will act on your behalf to pursue a debt from your customer. They will charge a fee or a percentage of the total amount collected. In Western Australia, debt collectors must be licensed through the Department of Commerce. Search for the debt collectors at the Institute of Mercantile Agents.
You may need to take legal action if the debt remains unpaid. Some proceedings can be complex and expensive so first consider the:
In Western Australia, the type of court to deal with disputes is based on the value of the debt.
|Magistrates Court||District Court||Supreme Court|
|Minor claims - debt or damages up to $10,000
General claims - debt or damages up to $75,000
|Debt or damages up to $750,000||Debt over $750,000|
Read our publication: Recovering a debt through the Magistrates Court for more information