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How best to control and mitigate bad debt

17 Dec 2013 5 min read

Effective credit control is an issue for New Zealand businesses, especially for smaller firms that don’t have the resources or the time to deal with it.

Robyn Jamieson, an associate at Grant Thornton New Zealand, says too few New Zealand businesses set out clear terms and conditions of trade before they begin working with a new client.

Her comments follow Kiwibank’s estimates that New Zealand businesses waste 18 million hours a year chasing payments.

“Smaller businesses may be afraid to be this direct at the start, in case it scares off a new customer. But if a business is not keen to agree to reasonable terms in the first instance, do you really want them as a customer? Agreeing on terms early will result in fewer headaches down the line.”

Jamieson believes New Zealand businesses are also very poor at dealing with late payments, especially if the account is in dispute or heading to the courts.

Clear terms of agreement, set up at the outset, are imperative although payment terms may vary according to industry types.

“For low margin, high turnover industries, such as food and beverage, payment is seven days. Traditionally, payments are due on the 20th of the following month but there is a creeping tendency in some industries for payments to be made 30 days after the month of invoice. This means customers are effectively looking for extra days’ credit.

“Businesses need to remember that credit is not a rite of passage. You do not have to give it. You need to make sure you can match your income flow with your own outgoings. Don’t let your reputation be tarnished because others are slow to pay you.”

Jamieson advises firms to keep a close eye on their trading partners, especially for small companies relying on one or two main customers.

Slow payments, bounced cheques, “the  cheque’s in the mail” or “the system is down” are some common excuses, she says.

“It’s also not uncommon to request a further credit check down the track if you have concerns. If you’re worried, get on the phone or visit the business to see how things are going. Don’t rely on emails.”

Tips for good credit control

  • Have signed and agreed terms of trade up front. Don’t let this drift.
  • Make sure someone is attending to credit control regularly and if customers get behind, give them a call.
  • Set the level of credit you are willing to offer and, if a customer goes over this amount, make sure you get payment before you continue any further business.
  • Consider having a Retention of Title clause in your contracts. This ensures you retain title until you are actually paid.
  • Make it as easy for your customers to pay you by utilising direct debit, credit card payments, internet and smart phone banking.

Further enquiries, please contact:

Robyn Jamieson            
Grant Thornton New Zealand Associate, Privately Held Business
T +64(0)3 379 9580
M+64 (0)21 275 0995
E robyn.jamieson@nz.gt.com

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