Photo by Alice Pasqual on Unsplash

Getting paid – Debt Prevention 101 (Pt 2)

Patrick Lim
Partner at Raj, Ong & Yudistra

Income is the precursor to profits. Profits in turn are the lifeline and catalyst to the growth of a business. Without income, survival and growth is almost impossible.

Throughout our practice, we have seen a common thread of things that would have made it easier to recover sums of monies owed. In our last article, we looked at best practices gleaned from years of dealing with clients as lawyers.

In this article we will look at a few of those practices and explore practical steps that would help you prevent bad debt for honest work done. Here we go:

  1. Issue a quote – It does not matter how small your business is. It can even be a one person, part-time, side hustle. Issue a written quote. It can be in messages or email. This avoids uncertainty of terms. It also gives you the initiative to set the terms of payment (lump sum, instalment, when invoices will be issued, payment deadlines) and also consequences of late payment (interest, stop work, withholding deliverables, etc.). If you need help, use an AI assistant like ChatGPT.
  2. Get clear agreement to the quote – This is surprisingly a common step that is missed out by small (and not so small) businesses. Even a simple “go ahead” reply to your email of the quote goes a long way in giving you a strong base to any claim you may have against the other side for non-payment.
  3. Issue an invoice – Again, it does not matter how small your business is. Issue an invoice in accordance with your quote. Google for samples and make your own. This does a few things. It is usually the legally recognised point of when a debt comes into being and time starts running. It also gives you definite points in time that you can follow up on. And most importantly, it is a signal to the other side that your debt collection process has started. It also really helps with your tax submissions.
  4. Take time to craft your ideal policy – Allocate time (it does not have to be long) to lay down your ideal policies. Make them reasonable based on your industry and build them into your quotes and invoices. It will provide a base upon which you can then negotiate from. It will also be the default position if the other side does not have any terms in mind.

The four practical steps mentioned above creates clarity and manages expectations. It has been our experience that one of an indicator of whether the client or customer is a good and timely paymaster is their actions during the negotiation of payment terms. Therefore, being mindful and practicing these steps is a good start to bad debt prevention.

In the next article, we will be looking at practical steps to encourage payment on these invoices that you have issued.

Related

Legal Audits (Vol 3, Pt 6) – Disputes and Law

Patrick Lim Partner at Raj, Ong & Yudistra Today we look at the last two focus clauses when reviewing legal contracts – dispute resolution and governing law clauses. It goes without saying that while we have discussed the types of clauses to focus on during a legal contract audit, there

Read More »

Legal Audits (Vol 2, Pt 6) – Ranking

Patrick Lim Partner at Raj, Ong & Yudistra Up to this point in this series on legal contract audits, we have covered things to consider when carrying out audits, the steps involved, the risk in the absence thereof, and personal liabilities that the management of a company may be exposed

Read More »
Scroll to Top