Debt detox is important for small businesses to manage their debts. The problem is that many business owners, especially SMEs, consider debt management as a complex and tedious process – and particularly difficult in the past two years due to the impact of the COVID-19 pandemic.
Even with the reliefs extended by the New Zealand government to businesses who had difficulty trading, it is expected that some will continue to experience difficulty managing their debts and improving their cash flow this time with another round of lockdowns due to the emergence of the Omicron variant. In fact, the New Zealand Herald reported that “more restaurants have joined the growing list of closures as COVID-19 continues to hit the hospitality industry hard.” In November, the news agency, citing credit bureau Centrix, reported that “Auckland and Northland businesses are showing increased signs of debt stress” and “Auckland business debt defaults are up 18 per cent this year compared to 2019 in pre-Covid times and Northland business debt defaults are up 12 per cent.”
If you are one of the businesses experiencing debt stress, not acting on it will only worsen the matter if you don’t start making smarter financial decisions pronto. The tendency with business owners is to put off debt detox to the last minute and this is when the trouble begins. But the truth is that debt management doesn’t have to be complicated or frustrating. All you need is a clear action plan to make the process simple and effective.
Tell-Tale Signs You Need to Manage Your Debt
But before you start creating a debt management plan, you must first learn to spot the signs that your small business is experiencing debt management issues. Here are the most common indications:
- It’s taking you too long to collect on accounts receivables
- You and your staff spend far too much time chasing overdue invoices
- Late payment issues strain your relationships with customers
- The stress of your overdue debt is taking a toll on your health
Debt Detox Steps for SMEs:
If you’ve been feeling all the signs outlined above, then your business needs a debt detox stat! Here are four simple steps you can follow today:
1. Set up financial goals for accounts receivables users.
Do you want to cut back on essential expenses, save money, or reduce debt in the future? How long do you want to achieve these goals – within the next 12 months or long term? Identify from your financial reports how much funds you need to collect weekly to improve cash flow. It would also be a good idea to ask your accountant to review your Accounts Receivable Turnover Ratio and Days Sales Outstanding. Assess how the data from such a review will affect your overall cash flow if the numbers are improved. Use the analysis to set measurable debt collection goals.
2. Check and update client details.
Collecting payments from your customers would be extremely difficult if you don’t have the right contact details. This is why it’s crucial to make sure your records contain the updated customers’ details. TIP: For those dealing with NZ companies, better check your customers’ NZBN. For those dealing with Aussie companies, best to check your customers’ ABN or ACN. When updating records, it’s best to start with the oldest clients because the older a debt gets, the harder it will be to successfully collect payment.
3. Review and upgrade your credit policy.
Your credit policy should reflect your business’ current needs and the government’s requirements. You may want to consider upgrading to e-invoicing, which businesses widely use now in the Australia-New Zealand region. This will help ease a shorter payment time with your customers and to reduce invoicing errors. When upgrading your credit policy, make sure that the new policies result in your customers paying your business on time and help you maintain good relationships with your customers.
4. Consult a debt collection agency.
It’s a misconception that debt collection firms should only be used as a final option when overdue invoices have piled up so high that a business can no longer deal with them on their own. But the truth is that the earlier you engage one, the more they’ll be able to help you.
How a debt collection agency can help you with debt detox
There are advantages of getting debt collection professionals to help you with your debt detox, the most obvious of which is that they are trained to do their job. Their working knowledge of the industry also equips them with out-of-the-box solutions that help businesses with tricky debt collection problems. For instance, at Slater Byrne Recoveries, we know how and when to issue a statutory demand, a remedy that is not often used by New Zealand businesses in their debt collection process. We also have access to credit reporting agencies, such as Equifax, which allow us to ensure our clients get back, if not in full, at least the large amount of the amount owed to them.
Debt collectors also employ a process that they’ve perfected and tested that is effective in recouping debts. At Slater Byrne Recoveries, for example, our debt collectors adhere to a debt collection time schedule that is fast and efficient so that we reach your customers and get them to repay their debts the soonest time possible. What sets us apart from other debt collection agencies is that we use ethical modes of communications, including WhatsApp, in our debt collection process so we are able to get in touch with your non-paying debtors.
Having professional debt recovery specialists by your side from the very beginning will help your business get its most significant returns efficiently. If you are thinking of doing a debt detox to improve your debt management that will surely result in financial success, get in touch with our team here at Slater Byrne NZ today! Call us at 0800 445 870 or send us a message at [email protected]