Who should chase our bad debts?

Dear Aunty B,

I run a small business. On YOUR advice, I sacked my wife and hired a bookkeeper.

While she has now organised me so that I am doing my community service and efficiently collecting taxes on behalf of the tax office in an efficient and timely manner and handing over the money when due, I was astonished to find that she doesn’t chase outstanding invoices!

She has just informed me that I have three bad debts and asked me what I was going to do about them.

Isn’t that her role? And if it’s not her role, whose role is it?

Dan,
Frankston, Victoria

Dear Dan,

Community service on behalf of the tax office is a wonderful feeling, is it not? And I am sure your marriage is much happier now your poor wife doesn’t traipse upstairs every night to toil over paying salaries that your bookkeeper does in a quarter of the time. So I will take thanks when offered.

But there is always a surprise in store when the wife steps back, because wives do everything and paid service providers do what you pay them for! It is not the role of the bookkeeper to chase bad debts. In fact, the bookkeeper’s role is not to act as credit controller unless it is stipulated in terms of employment.

Debt recovery is however one of the most important parts of the business. I was amazed the other day to read that only a quarter of companies bother chasing bad debts. But that’s good news because it increases your chances of being paid if you go after that debt! And the quicker you go after the debt, the more chance you have of being paid.

Who goes after the debt is another matter. You could put a solicitor on to them, but then of course you have to pay legal fees. You can hire a debt collector but again there is a cost involved. If there are three bad debts and they are substantial, I suggest you go after them! You seem like an aggressive chap. Make a note to call them once a week until the money is paid.

And look out for our story on Thursday on how to get your debtors to pay you.

Good luck!

Your Aunty B.

Comments

Cassandra Scott writes: Congratulations on making the decision to engage the services of a bookkeeper to help you out within your business. As a contract bookkeeper, one of my biggest sources of work is from those businesses who thought that they could go it alone with just the husband/wife/mother/father/daughter/son doing their books for them. It ends up costing so much more to have problems rectified, than it does to start out with a competent person at the beginning!!

That said, in answer to your question about who chases your outstanding debts, it really comes down to what terms and conditions you engaged your bookkeeper under. If your engagement included this service, then by all means, ask your bookkeeper to undertake it on your behalf.

If you are simply talking about debtors who’s accounts are outside of your trading terms, it should not be a huge issue for your bookkeeper to put systems in place (ie: regular statements, follow up phone calls), to manage these on your behalf. If you are talking bad debts, then you (and your bookkeeper) have a few options. First and foremost, you should make a concerted effort to make contact with your customer to ensure that they are happy with the service/product being provided. If all is good in this respect, then start to ask them why they haven’t paid (have they actually received a copy of the invoice??). Set deadlines for payment. If you (or your bookkeeper) are still not getting any satisfaction, then this is the time to start formal debt recovery. Depending on which state you are in, there are different options, but certainly handing the debt over to a collection agency is worth considering.

Again, if agreed to in your engagement letter with your bookkeeper, they can initiate this action on your behalf. Often bookkeepers with have knowledge on different collection agencies and their processes, so it shouldn’t be something outside of their scope. Ultimately though, the responsibility for debt collection is yours.

I often take on clients who can have debts outstanding for a significant period of time. One of my initial actions is to highlight these to the client, and seek direction on how they want these debts handled. Sometimes they are sitting on an Accounts Receivable ledger, but have been previously paid, and poor bookkeeping has not seen them cleared. There may be issues with the actual debt that the client is across, or simply, they do not know why it hasn’t been paid. Many clients (particularly smaller, service based businesses) don’t want to be seen to be “hassling” their clients for payment. This is where a bookkeeper can be a great ally and asset – they can make contact with the client on your behalf, and take on the role of bad cop if necessary.

Sit down and talk with your bookkeeper. If they are worth their salt, then taking on this responsibility for you, within clear guidelines and boundaries, shouldn’t be an issue.