Debt collection is a crucial aspect of managing a small to medium-sized business (SMB). It ensures you maintain healthy cash flow, avoid financial strain, and support the sustainability of your business. Here’s an expanded guide to the basics of debt collection, tailored for SMBs in New Zealand. 

What is Debt Collection and Why is it Essential? 

Debt collection is the process of recovering money owed to your business by customers or clients. For SMBs, effective debt collection is key to staying afloat and ensuring you can continue to pay suppliers, meet payroll, and reinvest in growth. 

Why is it essential for SMBs? 

• Maintains cash flow: Uncollected debt can lead to a disruption in cash flow, affecting your ability to manage operational expenses.
• Prevents financial strain: Addressing overdue invoices promptly ensures that your business isn’t reliant on a handful of large clients to keep it afloat.
• Supports business growth: By collecting owed funds, you have the resources needed to reinvest in marketing, product development, or expanding operations. 

The Difference Between Bad Debt and Overdue Payments 

Understanding when to classify a payment as overdue or bad debt is crucial for effective debt collection. It’s important to address overdue payments early, ideally within two pay cycles (around 60 days) after the due date, before they escalate into bad debt. 

• Overdue Payments: These are amounts that customers have not paid by the due date. However, this doesn’t mean they’re lost causes. Overdue payments can still be recovered if action is taken promptly. Starting the debt collection process early significantly increases the likelihood of recovering the funds.
• Best practices for dealing with overdue payments: 
  • Send a friendly reminder within a week of the payment due date.
  • Follow up with a formal payment request that is around 30 days overdue.
  • If payment is still not received, seek third-party assistance, such as a debt collection agency, around 60 days overdue. At this point, you have likely exhausted direct communication and a professional service can assist with more structured and legal collection methods. 

• Bad Debt: Bad debt refers to amounts that are unlikely to be recovered. This typically happens when a debtor is unable or unwilling to pay, or if they’ve gone into liquidation or bankruptcy. If payment hasn’t been received after multiple collection attempts and is far past due (typically beyond 90 days), it may need to be written off as bad debt. 

• Signs of bad debt: 
  • The debtor has ceased communication despite multiple attempts. 
  • The business has gone into liquidation or bankruptcy. 
  • The debtor indicates they can no longer pay (e.g., due to financial insolvency).

By starting debt collection early – ideally, within 60 days of the original due date – you can avoid payments becoming bad debt and improve the chances of recovery. If payment is still outstanding after this period, it’s time to consider involving a debt collection agency to manage the situation and recover your funds. 

Why Debt Collection is Critical to Your Business’s Cash Flow: Businesses Aren’t Banks 

For small to medium-sized businesses (SMBs), maintaining healthy cash flow is absolutely vital for day-to-day operations. Unpaid invoices and overdue payments can wreak havoc on your ability to meet financial obligations such as paying suppliers, covering payroll, or investing in growth opportunities. 

It’s important to remember: your business is not a bank. Extending credit to customers is a strategic decision, but it shouldn’t mean that your business carries the burden of unpaid debt. Delayed payments from clients can leave you scrambling to keep things running smoothly, especially if those funds were allocated for other essential business needs. 

How overdue payments affect your cash flow: 

• Strained cash flow: When money is tied up in overdue invoices, it can delay your ability to pay vendors, suppliers, or employees. This creates a cycle of uncertainty that can affect everything from operational efficiency to future growth prospects. 
• Increased financial pressure: Without timely payments, the financial pressure of covering fixed and variable costs becomes overwhelming. This can lead to borrowing or using business credit, which often comes with interest charges that further strain your finances. 
• Missed opportunities: Uncollected debts can prevent you from reinvesting in your business — whether it’s new equipment, marketing, or hiring additional staff. Instead of growing, you’re stuck trying to recover the money owed. 

Why debt collection helps maintain cash flow: 

• Speeding up recovery: The quicker you act on overdue payments, the sooner you’ll have access to the funds you need to continue running your business. Debt collection is an essential tool to speed up this recovery. 
• Preserving your working capital: Timely payments ensure that your working capital remains intact, allowing your business to operate smoothly without being dependent on external loans or lines of credit. 
• Supporting growth and sustainability: A steady inflow of cash enables your business to plan for the future and seize new opportunities without worrying about past-due payments holding you back. 

When overdue payments are allowed to linger, it puts your entire business at risk. By implementing a robust debt collection process, you ensure that your business remains financially secure, allowing you to focus on what you do best: growing and serving your customers. 

The Legal Framework Governing Debt Collection in New Zealand 

In New Zealand, there are specific legal requirements that businesses must follow when collecting debts. These regulations are designed to protect both the debtor and the creditor. 

Key pieces of legislation include: 

• Fair Trading Act 1986: Ensures that all business practices, including debt collection, are conducted fairly and transparently. 
• Credit Contracts and Consumer Finance Act 2003: Governs the lending and repayment process, protecting consumers from unfair or predatory lending practices. 
• Debt Collection Industry Code of Practice: While not a law, this code offers guidelines for ethical debt collection practices in New Zealand. 

What this means for SMBs: 

• Transparency and fairness: You must communicate the terms of payment and consequences of non-payment clearly to your customers. 
• Limitations on collection practices: Harassment, threats, or misleading claims during the collection process are illegal and can result in fines or legal action. 
• Professional debt recovery services: If the debt is significant or complex, consider engaging with a professional service that understands the legal nuances and follows ethical collection practices. 

Common Misconceptions About Debt Collection 

There are several common misconceptions about debt collection that can lead to confusion or poor decision-making. It’s important to address these to ensure your debt collection strategies are effective and legal. 

1. Debt collection is only for large businesses 

Reality: SMBs are just as vulnerable to cash flow problems caused by overdue payments. Regardless of your size, debt collection is a vital process for maintaining business health. 

2. You can use any method to collect debts 

Reality: Debt collection must be conducted ethically and within the legal framework. Aggressive tactics like threats or harassment can damage your reputation and lead to legal consequences. 

3. Debt collection is a one-off task 

Reality: Effective debt collection is an ongoing process. You must consistently monitor accounts, send reminders, and maintain open communication with customers to prevent overdue payments from escalating into bad debt. 

4. Debtors will always pay once you demand payment 

Reality: Not all debtors can pay immediately. It’s essential to consider flexible repayment options, negotiate terms where appropriate, and understand the debtor’s situation to avoid alienating customers. 

By understanding the basics of debt collection, you can keep your SMB financially secure and ensure you’re equipped to handle overdue payments quickly and efficiently. Act early, seek professional help when needed, and protect your cash flow to support business growth and long-term sustainability. 

SMB #CashFlow #BusinessGrowth #NewZealand #BusinessStrategy #FinancialManagement #DebtRecovery

As a minimum, you should always capture the following details about a new individual customer:

Their FULL name
Current Address
Mobile Number
Email Address

Your invoices are supposed to have at least the first two in most situations, so you need to capture that anyway.

If you are giving any sort of credit, get their date of birth and identification, e.g. a copy of their driver’s license.

If they won’t provide this, you don’t want to risk them as a customer.

Ask your accountant if writing off older debts (anything over 12 months) gives you a tax advantage. Each business is different. e.g. invoice basis GST

Then pass those debts onto a debt collector. Why waste your valuable time on them.

Keeps your books clean by reducing aged debtors size, and will cost you nothing.

Any successful collections come back onto your books as a journal adjustment, so still nice and clean.

Now’s the time to do it. Before EoFY.

I have had a couple of clients and prospect ask about commercial credit checks this week, more specifically whether they can run regular credit checks on key clients.

The answer is “it depends”.

Unless your account application specifically says you are authorised to run a credit check, you can only do so AFTER the client has defaulted and it’s passed to collection. The collection agency will, depending on the size and type of default, run a credit check in most cases. That’s a little bit late and not really going to help you.

So your account application has to say a credit check will be done. And if it doesn’t you are exposing your business to risk. Trade references are simply not enough.

As for regular checks, again, this needs to be specified as part of the client onboarding on the application form and in your terms of trade. You must also ensure it is not excessive. Once a year or if a very large order has been placed is reasonable, monthly is not.

Getting authorisation wrong can result in fines or even a law suit as every “search” shows up on the debtor’s credit report.

If you would like to discuss how you can protect your business feel free to comment below, or click contact us and send us a message.

Debt Collection Services Help Improve Your Cash Flow

For many businesses, debt collection has become a nasty thorn in the flesh. And because of increased outstanding billing and accounts, most businesses end up wasting half their time chasing after clients for the payments for products and services already provided. In order to rid yourself of the constant frustrations of emailing and calling your clients to pay, it is a smart idea to hire the services of a professional debt collection company.

Why? Well that’s primarily because of the unique methodologies and strategies they can employ to make sure you get your payments on time. Plus, they have the right intelligence gathering resources to help track down clients with outstanding dues.

Developing A More Precise and Effective Collection Rate

A debt collection company helps you with an important aspect of your business: the enhancement and flexibility of your collection process. Mentioned below are some of the benefits of developing a good collection rate:

Locating Debtors

With the help of a debt collection team, you will be able to locate debtors who frequently change their addresses and switch jobs. How? Well, debt collection agencies have a vast contact database which remains up to date. They can help you with the commercial information required to get in touch with your debtors, making collection easy not to mention fast-flowing.

Prioritize Your Collection

With the help of a debt collection agency, you will be able to identify which of your clients are more likely to pay you than others. A collection service incorporates the use of a multitude of score and segmentation resources that enable you to have the intelligence to monitor your clients who owe you. With the help of experts, you will be able to maintain a steady stream of payments owed to you and thus increase your collection rate.

Monitoring Of Outstanding Debts

Clients that show arrears will eventually become solvent and it is just a matter of time. But during this time, a debt collection company will be keeping an eye on your debtor accounts and prompt you whenever a customer indicates an improvement in spending power. This information will allow you to open the book on the customer’s account and collect the amount owed.

Are you tired of chasing slow payers? Sick of the excuses and lies; the broken promises?

Are you looking at your overdraft or own bills and wondering how you can pay them because someone else has an outstanding debt owed to you?

If you mutter a yes under your breath, then it’s time to hire a debt collector.

You really do have better things to do that send email after email, make call after call chasing the money. If a debtor is not paying, chances are there is nothing you can say or do to change that.

Why Hire a Debt Collector in NZ?

The biggest advantage about hiring a debt collector in NZ is “the power of the third party”.

Hiring a debt collector is safe and easy in NZ. Better yet, companies like Sentinel get results, and it costs you absolutely nothing. See here about adding collection costs.

So are you ready to hire a debt collector? Get in touch with us today by filling in the below form or lodge a debt bow to get a debt collector onto it today.

It’s happened to almost every dentist clinic or specialist medical practitioner at least once. The dreaded “runner” who has left without paying, leaving often large debt to collect.

Not only has a timeslot been taken that could have been filled with an honest person who pays, but more often than not there are also out of pocket expenses such as wages, materials and other sundry items.

Although many dentists or specialists simply right off the lost revenue as a bad debt, they do have an opportunity to recover the monies through a third party debt collection agency.

But even if they do this, sometimes they are in for another shock. The person has provided invalid personal information. Sometimes it’s a friend or family member, but more often than not it is completely bogus information.

From a debt collection perspective, that is a complete dead end. There is little a collection agency can do without at least some accurate information to trace a person.

In recent month, it’s apparent that this is a problem becoming more and more prevalent. The debt collection industry is already busy, these sorts of debts waste time and money for the agency as well.

However, there is a solution to the problem. Capturing and authenticating patient information accurately.

Requesting proof of identification, and in some cases a full credit check is perfectly legitimate. With some procedures costing many thousands of dollars, the credit risk warrants robust and accurate procedures.

Staff need to be educated to follow very methodical steps in bringing on new clients. There need to be forms that capture all required details, and these should be validated as much as possible. Asking for a driver’s license and calling or texting a mobile phone are not unreasonable.

In the situation where a fee is to be paid off, undertaking a credit check is also perfectly reasonable. You are providing credit, the risk is with your establishment.

As long as all information is captured, in the event of a collection being required, there is a very high success rate of a successful debt collection.

If you would like assistance in setting up procedures and templates feel free to contact us.

We are introducing a new service called a Comprehensive Debtor Risk Assessment.

It is a deep trading behaviour investigation and more than a credit check.

It goes beyond the automated services other providers offer. A real person is evaluating information looking for patterns automated systems can miss.

Before you offer significant credit to your new clients, get a better picture of who you are dealing with using our service.

At just $399 it could save you tens of thousands of dollar in bad debt.

If you would like more information, please email contact [at] scs-nz.com for a follow-up.

The answer is “that depends”.

Most debtors will pay after receiving the first letter that we send. We accept debts as little as $100. That would mean you recover $65.00 if the debtor pays but you cannot add cost. In most cases costs can be added, so you get the full $100.

If it goes all the way to court, then obviously the costs start increasing. But if you have solid terms of service around adding collection costs and other fees, then they can be added.

For example. If a hair dresser has someone book in for a colour and blow wave, and they leave without paying, they are out of pocket around $150.

Following up on the debt, as long as it is clear that costs will be added might look like this:

Base amount:	$150.00
Commission:	$52.50
Total:	$202.50

When a debtor see the amount and are made aware that other costs could be added plus their credit rating getting affected it is a very powerful incentive for them to make contact.

So next time you have a smaller debt, don’t ignore it, send it to us and we can likely get most if not all of the money into your bank account where it belongs.

Debt collection can be an increasingly annoying task, especially for small and medium-sized businesses which don’t have the resources to chase after their debtors. Even if you decide to put together an in-house debt collection team, you will be wasting more money and recovering less of it. And on top of this, you will have to invest a considerable amount of time tracking down all those debtors who are way past their due date on their payments. What if a particular debtor has switched jobs? What if he has changed his address? What will you do then?

The best thing to do is to hire experts when it comes to fast debt collection. A debt collection agency excels in recovering payments from debtors, no matter what. How? Well, for starters they have the resources and the equipment needed to track and monitor debtors who become too annoying and don’t pay. A collection agency also helps you to maintain a detailed electronic record of all the calls you have made to your debtors with regards to the outstanding bills owed to you.

These records will come in handy when you talk about the legal factors for debt collection. In fact, this is one of the best advantages of hiring a debt collection agency. Another advantage is that it allows you to:

Add More to Your Collection Costs
What this means is you can end up recovering more money from a debtor then you would without hiring a debt collection agency. How? That’s a good question. The answer is simple: you can just file a lawsuit against a stubborn debtor. You can sue your debtor for a hefty sum of money if he deliberately dodges all your calls and emails and doesn’t show any sign or effort in paying you.

A debt collection company can help sort all the legal issues pertaining to a debt collection lawsuit. On top of that, the records maintained by your debt collection agency will act as powerful evidence that even though several warnings were issued to your debtor, there was no response.

So, you can end up winning a case, getting paid double the amount your debtor owed you. Look to Hire a Debt Collector in NZ today.