Engaging with your customers
The initial client phase of any business is an exciting time for the business owner. The feeling the business owner has when signing up a new client is what drives the business to keep going. It is important to have certain legal documents in place at this phase to ensure the business is successful and will continue to be profitable in the future.
Your first engagement with a client may not seem to be particularly important but it is at that stage where the simple collection of the client’s details and having the client sign off on your terms and conditions can affect the future of your business.
Bringing new customers or clients in is the lifeblood for any business. By not having correct procedures in the background of your business it can mean you are out of pocket in the future if the customer or client fails to pay you for your goods or service.
Lack of process may cause lack of cash
We recently sat down with a client who unfortunately was owed a considerable amount of money for goods that they had supplied on credit to a business. The client had a credit application that they had new customers sign and some simple terms and conditions that they had changed over the years to incorporate various clauses that they had come across in use by other businesses.
Upon review of the documents (the contract between the parties) it was revealed that the customer was operating under a trust however none of the trust or trustee details were provided. The personal guarantee was not signed. The terms and conditions did not include default provisions (interest, administration fee or costs of recovery).
Due to the issues with the documents the costs for the client to pursue the debtor had increased dramatically and given the uncertainty around the entity of the actual customer the client decided to accept a less favourable payment arrangement from the debtor.
Process equals success
We recently spoke to a client who was running a successful wholesale distribution business. All of their customers were on credit with payment due 30 days after the last day of the month the invoice was issued.
The client had a system setup whereby a new customer would complete the following documents:
- Credit Application;
- Privacy Notice;
- Personal Guarantee;
- Acceptance of Terms and Conditions.
The customer would either deliver the documents to our client or post the documents to the client. Upon receipt of the documents the accounts department would review them. A checklist was in place whereby each important part of the document was checked to ensure the forms were completed correctly. If for instance the details were incomplete or the personal guarantee was not signed then this would be raised with the customer.
No goods were to be supplied unless this process was complete and confirmation provided by the accounts department.
Of course having a process in place does not mean that a business will not be faced with the situation where a customer has failed to make payment for a good or service. The purpose of having the process in place is to ensure the business that they are in the best possible position should a customer not make payment. The client had in place a follow up procedure for invoices where reminders were sent on regular intervals, and a telephone call would be made.
The client was able to use their process and documents to their advantage. A customer had failed to make payment for invoices. The invoices were 90 days past due. The process of following up the invoices had resulted in no response from the debtor customer.
The next step in the customer’s process was to either speak to a solicitor or instruct a reputable commercial debt collection firm to assist in the debt collection process. In this instance the customer retained the services of an excellent debt collection firm to start the next part of the debt collection process.
Demands from the debt collection firm proved unsuccessful and the debtor refused to commit to payment during telephone calls. Due to the debtors continued failure the customer was forced to take the next step which is where a solicitor is retained (either through the collection agency or directly).
Legal proceedings were commenced against the debtor and against the guarantor for the amount outstanding and legal costs. Due to the client’s terms and conditions which were agreed to by the debtor the recovery costs were able to be included in the debt owing and interest at a higher rate was able to be included. The legal proceedings were required to be personally served upon the guarantor and as the client had the details from the initial engagement form investigations to find the guarantor were not required (saving on costs).
The pressure of the legal proceedings against the company and the guarantor meant that full payment was made for the entire amount outstanding including costs (both legal and recovery) and interest.
Whether your business is supplying goods or providing a service the initial engagement with your clients is an integral part when building a successful business. If you want to ensure you have client engagement processes in place and be in the best possible place should a customer fail to pay you contact Craig Mason at Craig@smslaw.com.au or call 07 3667 8966 to discuss your needs.