Although the stressful period of retrieving my bad debt is over, I still have many customers that cannot pay up in full or delay the payment by 1 month or so.

One in particular was unable to pay us the large amount that accumulated over 2009 Christmas sales.

After understanding their situation and the business owner’s sincerity, we worked out a payment deal in which we would collect a fixed amount of money weekly so that our cash flow can improve and it will not be so taxing for our customers to pay us a one big lump sum of money.

5 months have since gone by and I’m happy to say that 70% of the debt is cleared.

We have been supplying goods to this customer the whole time throughout and they try their best to pay us, albeit having 1 or 2 weeks delay sometimes.

This arrangement has helped both of us to continue working together without much unpleasantness and more importantly, to serve our customers and grow together.

I guess different situations call for different debt collecting tactics.

Anyway, there were a few reasons why we chose to go with the debt collector instead of going through the Small Claims Tribunal.

1. The debtor was closing down the retail shop in 2 months time.
   • It takes about 2 weeks before we can attend the hearing before the Registrar.
   • If there’s any disputes and we cannot come to an agreement, it may take even longer to get the settlement.
2. The debtor is a retail outlet with no much of asset. Even the more “valuable” items in their shops have some flaws or damages.
   • It may even be a waste of our time and effort to pursue and file for a writ of seizure in the event it escalates to this stage.
3. The debtor owes a lot of suppliers money.
   • We figured that if we weren’t one of the first to file the claims, we may not even get back our money.
   • Or that we may only get back a small portion of the debt.
4. We were drained…
   • We were exhausted from chasing and asking for payment day after day, week after week.
   • It was more worth it to pass on this frustrating job to the experts so that we can focus on generating sales and growing our business.

And so, we weighed our odds and it has proven a well-made decision! =)

From my own rationalization, these were the pros that outweigh the cons:

• The debt collectors help to remove some stress in chasing for the bad debt; they saved us time and money and gave us a peace of mind.

• They are experienced and have their ways to recover the bad debts which we were unable to do so. This third party involvement has proved very effective for us.

• They allow you to combine the bad debts and collect the total figure on your behalf. (this would prove useful is you have very small amounts of debts from other debtors that would be a time waster to chase after)

The reasons why others dissuaded us are listed below and my rationalization are in blue:

• They cost us money and it is not a guarantee that we would be able to recover our bad debts.

  • We had to pay a flat fee upfront and are charged a hefty commission on the amount of bad debt collected. I figured this was no big deal, I rather pay the debt collector to do his job than to give away my money to a dishonest business.
  • Doing business is all about weighing the risks and returns. Nothing is a guarantee and after accessing our situation, this was a risk well worth taking.

• There is a risk that the debt collectors may use unorthodox methods to recover the bad debts and we risk our reputation as such.

  • An indemnity form was signed and it states that we did not request for the debt collectors to use illegal ways to recover the bad debts.
  • Do select the right debt collectors to do the job; check on their ACRA status and communicate with them to understand more before engaging them.

In my next post, I’ll share more with you about how we access that the debtor was insincere in repaying our debts and why we choose to use a debt collector instead of bringing them to the Small Claims Tribunal.

• Whether the company will still be in business 6 months after I file my claim
  • Reason being that if the company closes down within 6 months, it may be harder to reach the respondent (debtor).
  • Also, by that by the time action is being taken, they may not have much assets left for me to seize since they are no longer in business.

• Whether the company has assets worth seizing
  • For eg., my debtor was a retail company without valuable asset. Even with the writ of seizure, there may not be much valuable asset for me to seize.

The above is my own personal decision making process and it may not be the best course of action for your business.

Do think through and access your own situation thoroughly before taking any actions.

And if there’s any other considerations or important points to note, I hope others out there will share and post their comments so that we can help one another out. Thank you!

The claims must fulfil these criterias before you can file at the Small Claims Tribunals:

1. The amount claimed must not exceed $10,000.
2. The limit can be raised to $20,000 if all parties (Claimant and Respondent) consent in writing before the Registrar or Assistant Registrar.
3. Amount claimed must arise from
   • Contract for the Sale of Goods
   • Contract for the Provision of services
   • Arising in tort from Damaged of Property as a result of careless, reckless or improper act (except those cause by a motor vehicle)
   • Contract relating to a lease of residential premise not exceeding 2 years

Do also note that the claim must be made within 1 year from the date when the cause of action occurred.

You can also find more information from their website here: Small Claims Tribunals

I suggest that if you have any enquires, do go down personally to the subordinate courts to find out more. You’ll probably need to go over to the Bailiffs’ Office which is situated right next to the Small Claims Tribunals to clarify any doubts about enforcing the order too.

I’ll share more in my upcoming posts.

Unfortunately, even with good working relationship with suppliers and customers,  every businesses will still experience bad debts. For the rare few that don’t, they should count themselves very lucky. And for the rest of us, you can either seek solace that you can claim deductible expense when you file for tax or you can TAKE ACTION against your debtors.

Bad debts usually mean that small businesses would be hit with cash flow problems and face immediate pressure on the business. And cash flow problems is one of the main reasons for failure of small businesses.

Also, chasing bad debts can be a very mentally exhausting process. It is frustrating and time consuming. When faced with our first case of bad debt collection, our normal work process was put on a slow down mode as we tried to contact our debtor every few days to follow up. It was totally time wasting! Moreover, it can be demoralizing and draining, affecting your performance at work.

There’s a few option for bad debt collection. Before you proceed with the best course of action, you got to assess the situation and weigh your options carefully as every case is different.

Do keep in mind to start recovering your bad debts within 6 years or you chance of recovering the bad debts will be close to zero.

I’ll touch on the few options in my upcoming posts:

Legal Action through Small Claims Tribunal

Debt Collector/Debt Collection Agencies

Handling it on your own

• Letters sent to debtor returned undelivered

• The debtor’s family says he has moved but refuses to disclose his whereabouts

• The debtor denies responsibility

• The debtor asks you to sue him

• The debtor says, “If you press me, I’ll go bankrupt.”

• Another creditor has initiated claims against the debtor

• The debtor is a shell company whereby the directors say that they are not personally liable
  • This is totally untrue! As a director of a company, the person is liable for its debts etc.

• Change of ownership of company

• There’s rumors in industry about debtor experiencing financial difficulties
  • If you can, do maintain a good relationship with other customers and working partners in your industry so that you’ll be in the grapevine

• Debtor’s sector is adversely affected by economic trends
  • For eg. You can observe from a retail business that business is slowing down and whether they have enough customers to sustain their business

• You’ll need to know whether the company is Pte Ltd because if so, they may be liable only up to a certain amount of  the debt and debt collectors may not be able to get much from them after they declare bankrupt
• Reports cost only $5 each

Insolvency & Public Office Trustee - to find out if the company is already bankrupt

• Contacts can be found on their website

Small Claims Tribunal - to hear claims not more than $10,000 or $20,000 is the Claimant and Respondent consent in writing

• It’s much faster if you can go straight to the subordinate court if there’s a need to
• For matters relating to writ of seizure, you’ll be directed to the Baliff which is right next to the Small Claim Tribunal

QuestNet SG – for companies’ credit and litigation searches and reports

hello@TheEntrepreneurBusiness.com – if you want recommendation of the effective debt collection agency I’ve engaged

• A sudden increase in order
  • It may mean that the customer has lost credit with another supplier and is ordering more from you to fill the gap

• Payment become increasingly slow
  • The customer may have cash flow problem

• Groundless complaints about shipped orders or excuses about invoice misplacements etc.
  • The customer may be stalling time to delay payment

• Makes partial payment instead of the agreed full payment

• You receive numerous excuses on non-payment
  • For e.g. change of accountant, management, busy festive period. misplaced invoices etc.

• Makes payment for smaller amount even though earlier outstanding invoices are not cleared according to date
  • The customer gives excuses about mixed up invoices such that they can pay off the smaller amounts instead

So, if you see any of these bad debt warning signs, do exercise extra caution in extending additional credit to your customers.

And I’d like to hear from others too who have experienced bad debts. Do share your comments so that we can all learn and avoid getting ourselves into bad debts situations.

I had an eventful day 2 days ago. As you may already know, I have been chasing a bad debt for some time already and we finally took action 2 days ago. Yeah!

• Learn how to weigh the odds and take calculated risks
  • It is imperative that an entrepreneur is willing to do the above
  • If something is bound to happen for sure, anyone will know what to do next. In uncertain times, you just have to weigh the odds and go with the course of action that will most likely lead to your desired outcome.

• Have the courage to take responsibility and trust in your own judegment
  • When you have made up your mind after careful consideration, there’s no need to fear your decision is not the best one. It is simply the best one at that moment if you have done your homework well and explored all options.

• Do your own homework
  • Do not rely on others in difficult times because you yourself will know your own business better than anyone else. You will know what is the best thing to do.
  • But do still keep your mind open before coming to a decision. The key thing is to be selective in seeking opinions and practise critical thinking. More often then not, most people will dish out textbook advices which sound right in theory but not of much value in a practical situations.