You’ve been flooded with business expenses this month. So you log on to your accounts, hoping that hefty payment that was due last Wednesday has landed. And ugh. Zero, zip, zilch. Not again.
Overdue payments are as frustrating as they are disruptive, and having too many pile up can put your business at risk. Which is why making sure your business gets paid – and paid on time – is part and parcel of running a profitable business.
Thankfully, help is here. We’ve got some simple steps and protection measures you can use to nudge those slow-payers and keep your cash flowing.
CHECK OVER YOUR PAYMENT TERMS
Chasing outstanding invoices is a lot like sorting odd sock pairs. It’s not much fun, but we all have to do it. And whether your payment terms are 7 days, 14 days or 30 days, once you’ve provided your goods or services, you play the stressful waiting game to see if you’re going to be paid on time.
But the good news is you can avoid the waiting game (for the most part) by adding things like interest and debt collection fees or upfront payments.
Interest and debt collection fees
Do your contracts include the right to charge default interest on overdue accounts? And if you have to go down the debt collection path, are you permitted to add this to the customer’s bill? Incorporating these provisions into your contracts can also act as an incentive to keep your customers paying on time. But beware, the interest amount cannot be so high that it’s seen as a penalty. It must be a genuine reflection of your loss if they fail to pay on time.
If you don’t think interest and debt collection fees are enough to keep your cash flow happy, it might be time to consider putting in place an up-front payment policy. You can also talk to your customers about having set billing dates that work well for them.
CHECK YOUR SECURITY
Security is an essential part of all businesses (and we’re not talking about the big guy standing at the door checking ID). Security in your business contracts can come in the form of a personal guarantee or registration of your rights on the Personal Property Securities Register (“PPSR”).
So let’s break it down.
Where your customer is a company, there’s a good chance the company is a limited liability company. This means that the people behind the company are not liable for the company’s debts.
And we’ve all heard the war stories where a company owes thousands of dollars to a business, and after that company goes into liquidation, the business ends up with just a few cents in the dollar. Yikes.
So how do you prevent your business from becoming the subject of a similar story? One way is to put in place a personal guarantee. This guarantee is a promise of the individual (who might be the owner or director of the company) that if the company doesn’t pay the money owed to your business, you can enforce that debt against the individual.
Registration on the PPSR
The PPSR is an online national notice board, outlining who has an ownership interest in almost all property. All business owners should include a PPRR registration clause in their business contracts, as this gives them the right to register an interest in the goods they supply, up until the goods are paid in full or a right in the assets of the customer in the event they do not pay your bill.
That way, if things go bad for your customer, they (or their liquidators) may start to sell off the goods in their possession or the customer’s assets. Having your ownership interest registered on the PPSR gives you a secured priority right over any other creditors making claims. (other than other creditors who have a security that was registered prior to yours). This minimises the risk that the goods you own end up sold before you get paid or that you don’t get paid for services that you have provided.
Fair enough, right?
Chasing payments is something that every business owner will have to deal with at one time or another. But by adding solid protection measures into your contracts, you can not only increase your chances of getting paid on time, but you also can make sure you’re safeguarded when you don’t. Use these simple steps to avoid slow-payers and keep your cash flowing and business growing.
Need help putting payment protection measures in place? Chat to a savvy lawyer on-demand by joining METIS LAW PLATINUM. Click here tofind out more. Or email us at metis_at_metislaw.com.au or buzz (02) 8880 9383.