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The Follow Up – Debt Prevention 101 (Pt 3)

Patrick Lim
Partner at Raj, Ong & Yudistra

In the third instalment of our series exploring debt prevention or to be more accurate, “bad” debt prevention, we will be looking at the practical steps that you can take to keep your accounts current.

From our experience helping clients pursue and recover debt, we have come to realise that this part of the process is the most important part of debt prevention. Here are the main talking points:

  1. Follow up: The term “follow up” used here not only refers to consistently following up on your invoices, but also following your own rules, i.e., as far as possible, be consistent about your payment policies – if it your payment terms are 30 days, try your best to stick to it.
  2. Upfront loading: Depending on your industry, if you think you can get away with it, take some percentage of the payment up front. This usually ensures two things; (a) that you have collected some part of the debt already; and (b) the customer is less likely to change their mind. Additionally, if the deliverable is provided in stages, think about breaking up the payments to correspond with each stage and put in stipulations that allow you to suspend work if you do not receive the payments on the agreed terms. 
  3. Start early: Using your most polite and friendly demeanour and charm, start follow up on issued invoices early. If possible, use each milestone of the deliverables as a reminder or a notice of the outstanding invoice.
  4. Handover: If the deliverable includes the transfer of ownership assets or intellectual property, you may want to consider stipulating the date of transfer after the final payment is made. This will depend on the nature of your work, the industry that you are in, and your bargaining position.
  5. Issue official demands: A significant percentage of our clients who face issues collecting on invoices do not practice issuing official reminders and/or demands. You will be surprised by how effective consistent official written follow ups and demands are.

In the next instalment of this series, we will explore what legal options and ballpark costs for recovering debts that fall through the cracks to become “bad”.

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