A SURVEY of small business has found that many organisations fail to regularly implement simple debtor management practices.
A SURVEY of small business has found that many organisations fail to regularly implement simple debtor management practices.
The CPA Australia survey found that 62 per cent of small businesses never run credit checks on customers and 41 per cent never prepare an aged debtor report.
It revealed that most businesses chase up late payments, either once a month (33 per cent) or more than once a month (31 per cent).
However 22 per cent of businesses never chase up late payments.
When businesses were asked if they phone overdue debtors within a week of them falling overdue, 24 per cent said “regularly” and 16 per cent said “sometimes”.
But a further 46 per cent never phone within one week.
Grant Thornton partner Geoff Kidd said the findings of the survey concurred with his own business experience.
“Many small businesses just don’t take the correct approach,” he said.
“Often customers continue to be supplied even though they are overdue, so they exacerbate the problem.”
National Credit Management regional manager Stella Napier said failure to conduct credit checks was most prevalent among smaller firms.
“Smaller firms don’t do that but they should,” Ms Napier said. “It can sting the business if a client fails to pay or is late.
“The problem for small businesses is that they think they can’t afford it.
“They don’t see it as an investment, they see it as an added expense.”
Ms Napier said there were several options for small businesses wanting to run credit checks.
They could go direct to a credit reference firm such as Baycorp or Australian Business Research, or they could access the service indirectly via a mercantile agent such as National Credit Management.
The cost would range from $30 for a basic credit check up to about $200 for a more detailed financial report.
Ms Napier recommended that all businesses prepare reports on aged debtors.
“I’d suggest it’s the smaller ones, who know in the back of their mind who owes them money, who don’t prepare reports,” she said.
“But its good business practice to prepare them.”
Mr Kidd said the task of chasing up overdue accounts should either be outsourced or given to a staff member who could focus on that task.
“The wrong answer is to get sales people involved,” he said.
Mr Kidd said firms that diligently followed up overdue accounts would often get better treatment in future.
“You find that a majority of your debtors, if they know they are going to be late, it won’t be your debt that is late, because they don’t like getting the phone call.”
He emphasised that prompt follow-up was crucial.
“Anything that is above 90 days, we have serious concerns. It gets very hard.”
Ms Napier said some businesses only reviewed their debtors monthly, so it could be 60 days after invoices were issued before they recognised a late payment.
