Signs you have a bad collection process

Signs you have a bad collection process

Unpaid invoices have a great impact on a business as they create negative cash flow, which may result in such poor performance that it affects the relationship with suppliers, own employees and can furthermore cause a business to miss opportunities to strive and remain competitive on the market. Having a bad collection process is unfortunately common among new businesses as more than half of young Australian start-ups fail before they can collect profit after their first three years because of accounts receivables. Whereas this might be an obvious sign for you to seek help with a professional collection agency, there are several other red flags for you to look out for and address before they turn into a larger issue. To protect you from bad debt, first of all, you will have to take a closer look at your internal structure to identify collection issues, reduce accounts receivables and set up a policy to make a positive impact on cash flow. We have put together some signs for you to look out for before it is too late.

Bad cheques

One of the obvious signs that a customer is not reliable when it comes to paying invoices on time is when their cheques have bounced. Should you decide to work with a collection agency in the future to protect you from bad debt, such professional agencies have access to the credit history of potential customers. It would be advisable to let the debt collector analyse any company before getting into a work-relationship to be able to avoid slow payers, which will help you save money and human resources in the long run.

Unpaid invoices that are older than 90 days

When it comes to collecting account receivables, one of the very important rules is to do so in a timely manner. For your in-house collection team, it is essential to identify slow-paying accounts as soon as possible to start follow-ups, as statistics show that after 90 days of due date, debtors are less likely to pay and you will lose about 10% per month on unpaid commercial balances.

Having various debtors

To estimate the amount of accounts receivables it is important to continuously keep record of how many customers have failed to pay as if you have more than two debtors, there’s potential for more and you might consider involving a collection agency to handle your accounts receivables and not put the strain of multiple follow-ups on your in-house collection team.

Legal issues

When collecting bad debt from your customers it is inevitable that your collection team is familiar with the collection laws and regulations in each state and territory otherwise you will run legal risks. It is not uncommon for well-informed debtors to start a lawsuit when they know a law was broken. Make sure your team is in the know of all rules to make a collection process as successful as possible.

Untrained staff

Collecting accounts receivables can be a stressful and time-consuming task for your in-house collection team. Having a lot of accounts receivables could mean that your employees are not trained properly to manage debt collection efforts. Especially small businesses struggle to find the right human resources, which has undergone special collections training due to a limited budget.

As a lot of Australian business owners have decided to hand over accounts receivables to a third party to collect account receivables in order to be able to focus on daily operating tasks, there is no reason why you shouldn’t too next time a customer fails to pay you.


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