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Thursday, 12 January 2017

11 Tips for Debts Reduction for SMEs

You are a small to mid-sized business with borderline healthy financial status, or probably in need of funds for liquidity purpose. However, economy is bad these days and many clients have either delayed or defaulted payment. You may have an Accounts Receivables accountant but her job is not to call clients all day long to chase for payment.

Here are some tips you may wish to look at, to reduce debts owed to you:

1. Suing a Client-
Unfortunately, always the first thought that comes to mind but always should be your LAST resort. Suing someone is expensive- your legal expenses may be higher than the amount owed to you. Furthermore, this brings about adverse publicity to your company, and damages relationship between you and your client.

2. Sending Letters of Demand-
Law firms and some debt collection companies are authorised to do so. An LOD comes with an official letterhead and may be enough to intimidate your debtors to pay up soon.

3. Debt Collection Company / Mediation-
Major debt collection companies such as JM Rogers, Singapore Debt Collection Company, Miliken and Craig etc, have professional mediation officers who will be happy to assist you into reaching a settlement mode that does not damage your relationship with the clients. Payment may be slow, but eventually you get your monies back.

4. Selling your debts / invoices-
Some debt collection companies, as well as new apps such as SmartFunding allow you to sell your debts or invoices to them. So they pay you (not 100% usually) of your outstanding invoices, you keep the money - and they in turn will take over to chase your debtors for monies owed.

5. Conducting Credit Checks-
Before you enter into business with a company, or extend credit terms to them, it helps to do some research on them to ensure that they are not parties to a suit or have bad credit history. Companies such as Dun & Bradstreet and DP Information etc are examples of some firms that specialise in providing credit monitoring of your clients for you, so you do not enter into business with companies with poor credit ratings.

6. Take note of your Accounts Receivables-
Your accountants should be able to monitor and flag "bad" customers who owe money after credit terms, or fail to pay in full. As such, your company should attempt to regain payment and stop supplying goods / services to these clients unless they clear previous debts first.

7. Talk to your Customers-
This depends on how close you are with them, or what the nature of relationship is. If you are comfortable, approach the boss of the company (someone at your level) to try to understand if they are facing any difficulty. If they are willing to negotiate for installment payment terms, it saves you time and money in engaging professionals to perform the task for you.

8. Be in the Loop-
Follow the news closely if you can, or at least be in time for archives of news. Don't conduct business transactions with companies that have just been on the news for negative reasons (owing of debts, shares dropped dramatically, etc) lest you are not able to get payment. This is not a form of discrimination against companies with bad publicity or just underwent mishaps - but really a pre-caution. Think, why would a company that is about to wind up order 3 vessels from you?

9. Start Small-
If you are unsure about a new client, or provide very niche products, you might want to start small to test waters first. Once trust is established and you are more comfortable with them, feel free to expand business opportunities with them.

10. Don't Write off Debts too soon-
Some "easy-going" bosses write off debts too soon - either taking pity on a customer's plight or not wanting to destroy years of relationship. At the end of the financial year, their own set of accounts nearly give them a heart attack, having written off so many sums of debts - after all, small sums add up to tremendous ones. Keep some around, drop friendly hints for repayment and collect whatever you can - until it truly becomes a bad debt by irrevocable means (i.e. company collapses or owner dies / flees).

11. Sell Off Partial Company Shares / Stocks
You can do this by yourself or through a business broker. By selling off some of the company's shares, you receive funds for liquidity's purpose. The only drawback is that you may now have to co-manage the business with whoever buys the company shares, so work out the proportions for sale carefully.

Hope the above has been food for thoughts. Break a leg!

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