T&Cs (general terms and conditions)
You must inform your business partners of the general terms and conditions (T&Cs) and/or make them available at the time when the transaction is concluded (as a rule when the merchandise or service is ordered). Otherwise the T&Cs will not be a suitable instrument for enforcing your claim.
In the T&Cs you should state in detail how and on what terms you execute your service provision/delivery of goods and stipulate the terms of payment and the consequences of default (rate of default interest, dunning expenses, debt collection costs…). Do not be afraid to refer clearly to these seemingly unpleasant topics – even if your sales department regards them as unnecessary. Unusual provisions with adverse consequences for the contractual partner only become valid in the T&Cs when particular reference is made to them. It is therefore advisable to visually highlight the relevant parts of the text.
Terms and conditions that are only printed on the back of an invoice are merely informative in nature. After all, they were not known to the customer when the transaction was concluded. They cannot be used to help assert claims in court.
Creditworthiness of customers
Examine the creditworthiness of new customers or demand full or partial advance payment for larger first-time transactions. Reputable customers will usually have no objections. If the customer is unappreciative or refuses to comply, this could be a bad sign. Talk to other suppliers about their experiences with your new customer.
Monitor your customers’ payment behaviour on an ongoing basis and react to any deterioration by taking greater care. Always inquire after the reasons.
There are several possible signs that a customer’s creditworthiness has deteriorated or might do so in the future:
- The customer frequently asks to have the payment term extended ‘as an exception’.
- The customer no longer uses discount periods.
- The customer often makes unjustified complaints about goods or services.
- The ‘manager’ or the previous contact can often not be reached when invoice reminders become necessary.
- The accounting employees change frequently or there are large-scale changes at any one time.
Ensure that your bills are clear and accurate. This will reduce customers’ scope for objection and delays in payment.
Make sure that the invoice recipient’s name and address are correct and complete. Incorrect details can delay payments and even constitute subsequent grounds for lost court cases. Not least because of that, your customer files should always be up-to-date. Keeping your accounts up-to-date (at least once or twice a year) ensures that your customer data is always as accurate as possible.
The minimum requirements for invoices (and of course credit notes) as regards VAT law are generally as follows (please ask your tax consultant about exceptions):
- Name, address and VAT ID number of the person issuing the invoice
- Name and address of the recipient of the service
- Date of issue
- Serial number
- Day of delivery or indication of delivery period
- Quantity and description of the articles or type and scope of the service
- VAT rate applied
- Turnover tax incurred in the invoice
- Reference to any tax exemptions
Please note that since 1 January 2004 it has been mandatory to issue an invoice if the delivery or service is rendered for an enterprise or legal entity, or for clubs, societies or local authorities. Since 1 January 2006, an electronic signature has been mandatory on all invoices sent electronically.
Clear and unambiguous information about when the invoice amount has to be paid should be an important element of your invoice sheet (‘due date clause’).
Define the payment term for your customers as precisely as possible in your T&Cs and also on your invoice. The end of the payment term should always be the day by which the money is credited to your account.
Reduce the various discount and payment periods for your customers to a maximum of two variants. Unclear parameters are often interpreted generously – to your disadvantage.
Offer a fair discount arrangement. This will ensure that many customers pay their bills quickly, thereby minimizing their default risk.
If you grant a discount, define the discount periods precisely and on no account grant any leeway. Over time, unjustified discount deductions add up to considerable losses.
If you do not grant a discount, make clear and unambiguous reference to this on your invoice.
There is generally no legal obligation to send reminders as a follow-up to properly-issued invoices. Payment reminders, payment demands and the like are usual but not mandatory.
In principle, reminders should be sent to all customers when required. If you are concerned that some individual customers might react negatively to your written reminders, perhaps you are too heavily dependent on these customers.
Reminders sent by registered post involve high costs. Sending them by normal post is quite sufficient. Call your debtors as well and ask why they are not fulfilling their obligations. Make a record of the call; it might be helpful in subsequent disputes. Send your reminders rigorously, regularly and, most importantly, promptly after the expired payment term. One reminder per unpaid invoice should be enough. Let EOS ÖID deal with any further reminders that may be necessary.
If you want to send more than one written reminder per invoice, on no account should you provide any indication in the reminders themselves of whether more are scheduled (e.g. first reminder stage, second reminder stage…). Debtors adapt to this systematic approach and then often wait until the last possible deadline.
Prepare yourself for your accounts department being inundated with phone calls in the early stages after a new, tightened reminder system has been introduced. Your sales department, too, will side with the customers and doubt the necessity of the new, stricter reminder scheme. But you’ve got to see it through!
After a few months it will become clear that payment practice is far better than before with hardly any reduction in sales.
Give your sales force and/or sales department the opportunity to talk to the customers about their unpaid bills (information comes with a copy of the first reminder) but allow only a short period for this intervention. It is very often the case that field staff drag their feet in handling complaints out of false loyalty to customers. Inform the sales department about new developments in the billing and dunning process. Only then can you expect help and support from your employees.
Do your sales staff receive commissions for completed (and paid) sales?
Frequent unjustified complaints by a customer can often indicate that he or she is looking for an excuse to delay payment. The handling of complaints should therefore be speedy and carried out by competent employees in your company. Very often, partial or incomplete payments lead to unclear account situations that delay payments further and may even lead to confusion in your accounting department.
Make sure that the local contacts for complaints in your organization (e.g. branch manager, salesperson, workshop manager, field staff…) quickly examine and clear up the complaints received. These units very often have ‘complaints folders’ that are processed sluggishly. Deadlines for action should be set and backlog records made once a week.
Debt collection requires specialists. Talk to your employees. Internal resistance to the outsourcing of dunning activities, fear of job losses and of losing in-house competence are not to be underestimated. Only cooperation in a spirit of trust between your employees and the debt collection institution can lead to success. Take a close personal look at the debt collection company with which you want to entrust your accounts receivable, preferably at its own premises. If you do not find the company convincing from a visual point of view, its services in the debt collection segment will not fully satisfy you either. Look for a partner that seems to suit you.
Here are some tips in this area:
- When looking for a debt collection company, don’t allow yourself to be swayed by promised results, and certainly not by the cheapest offer. Reputable debt collection companies regard themselves as discreet providers of financial services. They convince their clients with honest work and fair terms, not with a pushy market presence.
- Your inquiries and/or requests should be answered within 24 hours (at least by the next working day). At the very least, you must receive a competent return call within this period.
- You do not need to be or become a fee-paying member of any association, society or other organization to avail yourself of debt collection services.
- Don’t take debt collectors seriously if they promise to recover a certain percentage of your accounts receivable without having any detailed knowledge of your customers and/or your internal processes. Such forecasts are imprecise and are often not fulfilled.
- In Austria, debt collection companies are forbidden from buying up overdue accounts receivable. If you receive an offer of this kind from an Austrian debt collection company, it is not acting within the law.
- Insist on having the interest accrued on the outstanding claim from the due date paid out to you right down to the last cent if collection is successful. Otherwise you will be giving away a lot of money.
- Complex procedures relating to debt collection cannot be described ‘succinctly’. Debt collection order forms with printed collection terms and conditions on the reverse are suitable only for individual cases and individual assignments. A regular and, possibly, extensive business relationship requires an appropriate commercial agreement. Insist on a contract that brings clarity to all of the procedures. Right from the start! Otherwise you could be heading for some unpleasant surprises later on.