For most businesses, chasing debts is a chore and bore, especially if it involves following up overdue invoices with long-term customers. Nothing sends a chill up the spine of a business owner more than having to tap a valued customer for money. So are there ways to automate this process?
According to Anthony Igra, general manager of mercantile agents Contractors Debt Recovery, automation will only get you so far. “It assists best in the reminder to demand letter stage of [debt] recovery. After that, a person needs to get involved,” says Igra.
He says automation best serves those businesses whose products are hard to dispute, such as accounts paid by credit cards for utilities or loan repayments. “For other goods and services, blind automation may hurt the business relationship.”
But automation will take you some part of the way along the debt recovery journey. Igra says many popular accounting software packages have functionality that will allow you to send out a form letter at set times. “This can put debtors on a predetermined and escalated path to legal action if needed.”
These systems will allow you to send reminders about invoices, as well as automated letters of demand. Software will also give you extensive information about who owes you money and when their account is due.
An example is accounting software package QuickBooks. Senior product manager of QuickBooks Online AustraliaNora Tucker says the software gives users a snapshot of their financial position, which is useful for managing debtors and creditors and for having a clear picture of cash flow.
“You can very easily see a list of all the contacts who owe you money. This is handy, as it means when you dedicate a specific chunk of time to chasing debtors, you have a list in one view without having to toggle between client accounts,” says Tucker.
The software also allows users to easily see overdue invoices and sort them by date due, customer name, invoice number, the age of the debt or the amount due. Tucker says this helps businesses prioritise debtors.
The software also includes a tool that summarises the status of unpaid invoices and displays the amounts due across 30, 60 and 90 day-plus periods. “If you are chasing payment for a transaction, you can drill down from this report to see the specific invoice, and even the individual line items that make up the invoice. This is useful when there is a query over a specific item or product,” says Tucker.
Tim Reed, chief executive of accounting software business MYOB, says the software also automatically reconciles accounts that have been paid by matching banking records with invoices entered into the system, allowing users of the software to see when a customer has paid an invoice.
“So every day, you get an up-to-date view of the debtors’ ledger. It’s important so that you don’t contact clients who have already paid an invoice.”
Other steps of the debt recovery process can also be automated.
Craig Savage, managing director at Independent Recovery Services, says auto-diallers can make telephone reminders, and SMS messages can also be sent via accounting software.
“The obvious benefit is lower labour costs. As most automated functions involve paperless technologies, printing and postage costs will also be reduced. Another major benefit is the ability to track performance of which reminders work best and when so that your procedures can be tweaked accordingly. The success rates differ greatly between the various technologies depending on the day and time they are sent,” Savage says.
Accounting software packages do, however, have limitations when things go legal. For instance, you can’t get a summons using technology.
“Service of a summons must be by a person or registered office – although there was one well-publicised case of a person being served via Facebook. But mostly, summons are served by people called process servers, who can then supply an affidavit of service. A court will need to see that the debtor has been served,” Igra explains.
“[Using technology] it’s very hard to show proof of receipt of letters if things get into the legal arena. Plus, the value of the relationship with the debtor must always be in the mind of the business owner, which is why debt collection cannot be left to a machine,” he says.
“Clients to whom a business may cut some slack will also not be recognised by an automated system. Or, having landed a blue-chip client, are you really going to hit them with a demand letter first-up if they are late paying?” he adds.
It is possible to electronically lodge documents related to bad debts in many courts throughout Australia. Some states even have the facility to bulk-lodge a number of claims at once.
“This is excellent, as it helps relieve the workload of court registry staff. As it is now, Sydney and Brisbane courts have backlogs of about three to four weeks processing documents lodged by mail, so it is a real time-saver to have claims processed instantly online. I suggest businesses engage the services of a debt collector or lawyer for this as all legal costs cannot be recovered unless a qualified person lodges the legal documents,” says Savage.
However, there are drawbacks to using technology to manage debtors. Automating credit management is fantastic in reducing costs and prompting good customers who were always going to settle their account to pay a little quicker. But, says Savage, it will not assist and may even hurt your chances of resolving problem accounts. “Unfortunately, there is always going to be a percentage of customers who will be delinquents and have no intention of ever paying and will go to any length, using aliases or fraud, to get your goods or services for nothing. So it’s important not to rely solely on automated processes.”
Ultimately, it is important businesses still use old fashioned telephone calls or drop in to see customers face-to-face in credit management procedures. “Experienced debtors will know how to work around an automated system and the only way to catch them out is to keep an eye out for the warning signs during human interaction,” says Savage.