De-risking Debt

As a small business owner, there’s nothing worse than having overdue accounts – funds you could be using to enhance fund growth opportunities, replenish inventory or make necessary payments to your own suppliers.

Overdue debt is that fragile relationship between wanting to get paid and not wanting to upset the customer, which may put a strain on future work. Having the right processes and understanding is key to ensuring that overdue debt does not get out of hand. Not being surprised is the key to de-risking debt!

While there are always going to be those select invoices or accounts that take a bit longer than usual to collect, it should be the goal of any small business to reduce overdue debt. Sometimes, however, overdue debt cannot be avoided. There are ways of achieving success without being overbearing or rude; in fact, there are quite a few proactive solutions that will help reduce the chance of debt becoming overdue and non-collectable.

Understand Your Prospects

Guess what!! There is such a thing as a bad customer. When quoting a prospective client, do your due diligence on who they are and the reputation they have in the marketplace. This will give you a first glance of any potential issues you may have in the future if red flags pop up don’t be surprised if you take on the risk and the debt becomes overdue. This is also true for existing customers, keep an ear out on what the industry is saying about them.

If red flags do appear, we suggest to;

  1. Walk away – sometimes the risk is too high for the reward
  2. If you proceed, ensure you price your services accordingly and take into consideration the potential cashflow impact the overdue debt will have on your business
  3. Ask for deposits – there is nothing wrong with asking for a deposit until you have created a positive payment repour with your client

Letter Of Engagement

Having a clear understanding between you and your client is nothing new, create a Letter of Engagement for your business which outlines clearly what each parties’ expectations are. This is important if you are a service-based business where your work is repetitive or ongoing.

This will become quite useful if you ever run into a client who refuses or is slow in paying their bills. Furthermore, this becomes a golden document in the unfortunate event of having to escalate and go down a legal process.

Where you sell products or one-off engagements, a Letter of Engagement is still considered useful, especially when identifying prices and terms.

The Letter of Engagement should contain key information such as;

    • The services you will provide
    • Any commencement and end dates to the agreement
    • How much will be charged, frequency and payment terms (i.e. 14 days from invoice)
    • How each party can terminate the agreement
    • What the steps would be if invoices remain unpaid past their due date

Key items such as payment terms should also be clearly defined on invoices sent to customers.


Another way to reduce overdue accounts is to understand what risks you are happy to take and more importantly ensure everyone in your business is on the same page. This can be done by writing a clear and concise credit policy that highlights your terms and conditions. The policy should contain information such as general payment terms offered, the process of escalation, reminders and timeline of steps taken before it is turned over to a collection agency.

Don’t forget to review these policies periodically to ensure they remain current and cover trends in the economy and payments from clients. In recent times many businesses have been impacted by situations out of their control, so it is important to keep these policies up to date.


Most accounting software packages now come with functionality which allows you to set up reminder letters and monthly statements. This allows your clients to keep track of what is due and give them a friendly reminder when something may have been missed.

We operate in a world where businesses get hundreds of emails and notifications each day, and sometimes even with best intentions, your invoice may go missing or fall part of the dreaded spam. Sending a friendly reminder allows the client to be aware that the payment of an invoice was missed. The added feature some accounting packages have is that selected clients can be excluded from the process if required.

If your business is unique, there are always third-party provider applications which integrate to your accounting software packages which allows you not only to manage your debt but also integrate with payment platforms.

Contact us if you need assistance in setting this up in your business.

Make it Easy

It is important that you offer your client multiple channels to make payments, some love simply paying by EFT or the old school cheque but others use credit cards so that they can manage their cash flow and earn points.

Another great way of managing your debt is to engage clients to go on a direct debit facility where the invoice is automatically deducted from their bank account or credit card on an agreed day of the month. This not only helps you get paid but reduced the workload on your customer’s plate.

Talk to us today on ways to help your clients pay you such as Stripe, Ezidebit or GoCardless.


As a business owner, you also need to stay on top of outstanding debts to reduce overdue accounts. Keeping an eye on how your collections are going is still the number one way of not being surprised by overdue debt. Run your reports or set up your accounting software package with the right information at your fingertips.

We have set up processes with many clients where they receive a periodical report showing aged debt and status of collections and keep them up to a speed of any potential risks. As a trusted partner, we also provide collection assistance and writing of policies.

Do not be afraid to pick up the phone and have that friendly discussion with your client as to why an invoice may be outstanding. This will allow you to quickly identify what steps you need to take to get the invoice paid.

While it’s frustrating to deal with slow-paying clients, reduce overdue accounts by implementing your own unique solutions and create clear guidelines as to what you expect from those working with you!

Contact us for a complimentary bookkeeping consultation and be sure to visit us on Facebook!

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