Many businesses have utilized government subsidies and schemes to continue to trade during and following the COVID-19 crisis in New Zealand. In a recent article in the New Zealand Herald, John Fisk, chair of the Restructuring Insolvency and Turnaround Association New Zealand has predicted that 2021 will be bleak for businesses in relation to the number of insolvencies. While government schemes like the wage subsidy have been a ‘saving grace’ for many small businesses, Fisk indicated that those solutions have not addressed the underlying problem, that businesses need to generate sufficient cashflow to not only pay their current debt and expenses but historic debt.
For small business owners, finding a solution to this problem is best not left until the matter becomes too far gone. It’s much better to be proactive and keep on top of your cash flow, than to ignore it until your business is nearly insolvent.
What solutions are there to maintaining a steady cashflow?
In the current economic climate, businesses are experiencing a decrease in cash flow. Along with many other small businesses, you may find yourself seeking a solution. There is currently a strong focus on shopping local throughout New Zealand however, for some small businesses this may not be enough to keep the doors open. Debt collection is another tool available to increase cashflow. Rather than trying to chase new work it may be a lot easier to simply chase your existing customers and ensure that they are paying you on time. Whilst this may seem daunting, it can actually be a simple and easy process. Our efficient and experienced team at Godfreys Law are able to help you to easily navigate this process by explaining and advising on procedures at every step.
What do you need before you begin the debt collection process?
The first step to maintaining a steady cash flow is complete your invoicing. Businesses generally cannot afford to work for free. Ensuring that your invoices are sent out soon after the work is completed is an easy step to encourage your customers to pay you.
You may also want to ensure that you have properly engaged the debtor by way of an engagement letter or a formal contract outlining the services and/or goods (terms of trade) provided and the cost. It is also preferable that your terms of trade include a clause providing for the recovery of debt collection costs from the debtor. These terms must have been provided to the debtor and have been accepted by them to be upheld. It is also important to note that there is no one size fits all approach to terms of trade, it is important that your terms of trade reflect the way you do business, your industry and your customers. Properly written terms of trade can help protect you against unnecessary risks and help to encourage a strong and easy working relationship between you and your customers.
How can we help when people don’t pay?
If your debtor still doesn’t pay we can help. We begin by sending a letter of demand for payment. This letter gives the debtor the opportunity to settle the matter before it proceeds to Court, minimizing your cost and theirs. Often, simply receiving a letter from a lawyer will prompt debtors to pay their outstanding bills.
If the debtor still neglects to pay your costs, we can move to file proceedings. The type of proceedings is dependent on the circumstances of each case; civil, bankruptcy or liquidation proceedings may be commenced. We will be there to walk you through the process each step of the way to recover the money you are owed and ensure the process is as easy and smooth for you as possible.
Now more than ever it is vitally important to keep on top of your cashflow. Whether it’s updating your terms of trade or chasing down outstanding debtors, if you would like assistance in easing your cashflow issues, contact the Debt Collection team at Godfreys Law on 03 366 7469.