If you are a business owner extending credit to your customers, then its imperative to know that you can actually rely on your terms and conditions in the event of late or non-payment.
In Australia, over half of all small businesses receive payment of their invoices outside of trading terms, with nearly 12% of all small and medium sized businesses having to ask between 4 and 8 times for payment of outstanding invoices.
With up to $9 billion per year never being paid to small and medium sized businesses, business owners need to be able to rely on their terms and conditions in the event of late or non-payment.
If you have terms and conditions
Your terms and conditions should always set out when invoices are due, so it is best practice to always ensure your accounting systems are up to date and reflect what has been agreed with the debtor.
If there is ever a dispute about the timing of when an invoice is due, parties will generally seek to rely on the terms and conditions which have been agreed to. Poorly drafted terms and conditions can leave you exposed to disputes and may jeopardise your ability to recover amounts that are owing to you.
Well drafted terms and conditions should also set out the options available to you when dealing with late or non-payment of invoices. These should include:
- when invoices are due and payable;
- the steps which should be followed before engaging a debt collector or law firm; and
- how the debt recovery costs are dealt with as part of the total amount owing from the debtor.
Important: The costs of paying a debt collector or law firm to recover the debt owing to you are not automatically added to the total amount owing from the debtor unless your terms and conditions specify that they are. Unfortunately for many businesses, these costs are simply worn by the business because they haven’t been incorporated into the agreed terms and conditions.
If you don’t have terms and conditions
If you don’t have any terms and conditions, remember you can still rely on verbal agreements and other forms of communication such as SMS and email which set out the arrangement.
If you’re unsure about your options, or you’re just seeking some general guidance, it is highly recommended you speak to a legal professional to understand how best to take your overdue debt forward.
Pursuing late and overdue debts can be challenging at the best of times. Trying to enforce a debt owing by relying on outdated or inconsistent terms and conditions simply adds an unnecessary layer of stress.
In an era of heightened credit risk, its imperative that business owners regularly review their terms and conditions to ensure they continue to provide maximum protections when dealing with late and overdue debts.