NZ Credit & Finance Institute
Member
Governance New Zealand
Associate Member
RITANZ
New Zealand General Member

Selling on Credit? 5 Things You Must Do Now

For a lot of businesses the sale is complete once the order is fulfilled. It seems a bit of a cliché to say that a sale is not completed until the money has been paid but it is nonetheless true, and this is still an area where most businesses could do better – far too many New Zealand businesses are dependent on banks and/or creditors for cash flow as the cash payments from customers are late or never turn up at all.

So, if you own or run a business here are 5 things you should do now to help get that cash coming in when you expect it.

  1. Get to know your customers.

Not on a personal level, but on a business one in order to assess the risk of non-payment. This is done in a variety of ways including conducting credit checks, reviewing financial information when available and reviewing potential security options. All of this is relatively inexpensive to do, but it is rather a specialist area so help is usually required to do a thorough job. But it can save you much financial heartache in the long run.

  1. Review your contractual terms of trade.

You do have these right? If you don’t have terms of trade agreed to by your customer before you extend credit then many of the protections you may think you have may not exist. A couple of examples: any registrations on the PPSR that you have protecting unpaid for goods in the event of a customer insolvency will lose their priority (see #3 below); the right to charge interest or collection costs on late payments will probably not be enforceable – even if it is stated on the back of an invoice. You need to take care here – this is captured under the Fair Trading Act and certain breaches of the FTA can result in fines of up to $600,000 for companies.

  1. Register your PPSA interests.

PPSA stands for Personal Property Securities Act. The aims of this Act are quite straightforward (to have a single piece of legislation that covers priorities for security interests in all types of personal property) but conceptually quite complex as it introduces, amongst many others, the concept that ownership is no longer relevant – under the act title to goods no longer determines priority. What this means for many business owners is that if you ship goods to a customer who fails to pay and then enters insolvency, without the correct documentation and registration on the Personal Property Securities Register, then it is more than likely that you will not be able to reclaim those goods. It is imperative that business owners selling goods on credit get this right.

  1. Have a robust internal collection process in place…..

…..and use it! It is undoubtedly difficult as a business owner to build relationships with customers in order to generate sales and then to have to take them to task for non-payment. It then becomes a hard equation to solve as to when you actually escalate action to the customer that impacts them such as stop supply – 30 days late? 90 days? Is there a point when legal action needs to happen? When is that? It helps a great deal to answer these questions if you have in place a collection process that, for you, details what action you will take against customers at certain trigger points. Communications are also key, including the specific wording that is used at each trigger point, and having standard form letters and/or emails is important. If you seem business-like when you deal with late payments your customers are more likely to respect your payment terms.

  1. Get expert help

The above suggestions will go a long way to helping you get paid on time and minimising the risk of you losing money in a customer insolvency, but starting these from scratch can be daunting. Some of these can be quite technical (for instance issues around the PPSA and terms of trade) and it can help a great deal to get expert help, at least in the first instance to review how you are doing currently and suggestions of areas that need tightening up. It could make the difference between a profit and a loss.