CLIENTS not paying on time can have very serious consequences for owner-managed businesses, but threatening legal action is not always the best option when dealing with bad debt.

This is the general view of business owners who have often had to deal with late payments A, but have chosen alternative means to work out payments of overdue accounts.

One business owner, who refused to be named for fear of breaking client confidentiality, says she grants clients between 30 and 60 days in which to settle their accounts.

If the account has not been settled by the agreed time, the client is then contacted on numerous occasions and provided with an opportunity to work out payment according to their specific monthly income.

Ralph Paterson, owner of AFS Cash Loans, says it is not advisable to threaten clients with legal action.

He believes business owners should explore various ways in which to reconcile debt, by first arranging with clients suitable ways in which to pay.

In this way the business owner will retain their clients by maintaining a gentle and understanding approach towards their specific financial shortfalls, says Paterson.

Business owner Dennis Robinson of Alpha Builders Supply says late payments can lead to cashflow problems that many owner-managed businesses are not able to handle.

“Cashflow is critical to the survival of any business, especially owner-managed businesses which are unable to take the punch of serious amounts of money owed to them as bad debts”, says Robinson.

Robinson says he does not believe taking legal action is always the best way to deal with late payments from clients because business owners have to still wait months before they end up receiving the money owed and then only after the attorney has first deducted their fee.

Omar Essop (pictured above) who runs and owns TSE Big Max, an import and manufacturing company, says he recently started sending out a letter to clients stating that should they not settle accounts with him within 60 days, their outstanding account would be handed over to a debt collecting agency.

Essop believes it is important to remember to thank those clients who settle their accounts on time.

He says he doesn’t believe in giving extra credit to bad debtors because this will only encourage clients to take advantage by not paying their debts.

He employs incentives to encourage clients to pay cash. For example, a client who pays cash may get a discount of between 10 and 15%.

This then allows Essop to build up the necessary cash to in turn approach his suppliers and be able to negotiate a better price from them.

Keep a check on outstanding invoices with standard letter

As a business owner, you can literally not afford bad debt. When a client does not pay for goods or services delivered, you not only lose the profits, but also all the costs that went into creating the sale. Late payments can have a devastating effect on your business’s cashflow.

Yet this is an area in which business owners are notoriously poorly organised. Having a series of standard debt collection letters can lend some structure to your debt collection process. Send the first letter exactly a week after the payment is due.

Research has shown that the longer a debt is left unpaid, the less likely it is that you will ever receive the money.

Continue sending letters a week apart, until you get paid, or have to hand over to a debt collection agency.

• The first letter should simply be a friendly reminder. Thank the customer for their business and remind them of the amount outstanding.

• If you have no response, send the next letter a week later, directly asking for the money. Say that you are concerned that you have not been able to get hold of the client, ask if they are all right and if they have any trouble paying.

• If you still get no response, send out a third letter in which you refer to the terms of payment. Explain that their lack of payment is having a negative effect on your cashflow and on your business.

• By week four you should tell the client that you are asking for the money a final time before handing over to a debt collection agency. Include a copy of the agreement between you and the client.

• If you hear nothing from the client, follow up the letter with a phone call. In the phone call, you can refer to your letters and ask the client whether they have received them.

If all this has failed, consider handing the client over to a debt collection agency. There are hundreds of such agencies available who will collect debt on your behalf in exchange for a percentage of the debt.

A system that highlights dates when payments are due will also force you to be more aware of money outstanding and debt collection periods.

Contact Paterson on 011 838 4463, Essop on 011 622 1527 and Robinson on 011 976 3118.


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