Having customers adhere to your trading terms is a perennial challenge for business owners, and being paid on time can be the difference between business survival and failure in a COVID-19 landscape.
Enter DebtForce: a law firm-backed start-up that offers a quick, intuitive AI-powered platform which simplifies and speeds up debt recovery. The platform enables creditors to lodge and track outstanding debts and offers debtors flexible payment options that ensure high recovery rates. DebtForce manages claims from $500 to $100,000, charges no up-front fees, and commission is paid only when a debt is recovered.
The business is the brainchild of lawyers, David Rennex and Anthony Curtin, and technology entrepreneurs, David and Michael Sojevic.
“As a practicing litigation lawyer, I talk to a lot of creditors, and I understand that debt recovery is among the top concerns for SME clients,” explains DebtForce CEO, David Rennex. “I also understand that debt collection is often an expensive process and that everyone wants to avoid civil litigation.
“Anthony and I recognised a couple of years ago that traditional debt collection methods could be improved, and we teamed up with David and Michael to build a user-friendly platform that utilises new technologies such as automated letters of demand and instant text messaging.”
David says that aggressively pursuing outstanding debts during the 60-90-day period is critical to avoiding bad debts.
“Once a debt goes beyond 60 days, alarm bells start ringing. At this point, businesses have to spend time chasing the bill and wasting resources on accounts receivable, as opposed to focusing on winning new business,” he says. “We built the platform with an ability to apply pressure during that 60 to 90-day period because we’ve come to understand that’s when you have your best chance of collecting the debt.”
The second important feature of the platform is it offers flexible repayment options such as staggered instalments. “I think this is a valuable tool, particularly in the current environment because it allows small businesses to trade through this period,” he says.
David says that when it comes to debt recovery, prevention is the best method. He offers the following tips that will help ensure prompt payment:
- Conduct due diligence on any company with which you’re contracting. Perform a credit check and see how they’re trading.
- Have clear trading terms written on all quotes and invoices. This can include a statement explaining that if a debt remains outstanding past the trading terms, the company reserves the right to pass it on to a debt collection agency and that the recovery fees will be passed on to the debtor.
- Communicate consistently with your debtors.
- Be prepared to negotiate on payment terms if a debtor is having trouble paying.
The DebtForce platform has been operational for around six months, and the growth strategy is to build a national presence, targeting a few key areas such as professional services and the construction industry, because builders have a reputation for being tardy payers.
The platform has proved successful for clients such as local construction company, Tormax, which has recovered 90 per cent of its debts since COVID-19 first appeared.
David does, however, admit that DebtForce faced the same challenges as most start-ups. “The challenges were around making sure everyone was aligned with what you’re doing, having a consistent message, and not spending a huge amount of money in the initial phases to get the product up and running,” he says.
SMEs feel the cash-flow squeeze
There is no doubt that debt collection is a significant problem for Australian businesses.
A 2019 report from Xero Small Business Insights analysed information on more than 10 million trade credit invoices issued by 150,000 SMEs. It showed 53 per cent of invoices are paid late. On average, SME invoices are paid 23 days late, putting pressure on cash flow.
Based on Australian Bureau of Statistics trade figures and AlphaBeta estimates, an estimated $115 billion in payments from large businesses to SME are paid late each year.
Not only does late payment create cash flow problems that can lead to insolvency, but the Xero analysis identified that SMEs that are paid slower than average, have about one third lower revenue growth than those paid faster than average.
David believes that the temporary measures the federal government has introduced to minimize the impact of COVID-19 on business make timely debt collection more important than ever, and he supports the government’s initiatives, which include:
- Increasing the threshold for creditors issuing a statutory demand under the Corporations Act 2001 from $2,000 to $20,000. This will apply until 31 December 2020.
- The statutory timeframe for responding to a statutory demand has been increased temporarily from 21 days to six months until 31 December 2020.