Pull In Your Debt ASAP! … 3 x Critical Steps For Trade Businesses

Andy
It’s time to face some hard truths and tackle the topic of debt collection head on in today’s episode. 

Ange
For too many tradies, their cash flow is suffering. Stress levels are through the roof and you’re often left wondering if you’ll ever get paid for the hard work you’ve done. 

Andy
It’s a scenario too many tradies are familiar with, but it doesn’t have to be this way. Today, we’re sharing three basic yet critical steps to pulling your debt ASAP and keeping your cashflow healthy. 

Ange
These aren’t just tips. These are actionable steps we’ve tried and tested, not only in our own business, but many of our members’ businesses too, that will make a massive difference. So, if you’re ready to take control of your finances and ensure you get paid first and fast, then listen up. 

Andy
You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you, who want to lead with confidence, make more profit and create a better lifestyle. 

Ange
We’re your hosts, Andy and Angela Smith, husband & wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun?

Andy
Hell yeah! Ever wonder what it takes to turn your trade business into a success story? We’ve done it ourselves and now we’re sharing our secrets in a one day workshop. Learn how to systemize your business properly so you can get off the tools, increase your profits, win more of the jobs you want, and build a dedicated team. These are the exact steps we took to transform our business. Seats are limited, so act fast. Go to lifestyletradie.com.au to claim your free ticket.  

All right, let’s dive into the heart of the issue. Unpaid bills and outstanding invoices can quickly become a nightmare for any trade business. Take for example a member who just joined us with $180, 000 outstanding and at the moment he’s also owing $110, 000 to the suppliers. This was a maintenance plumbing business, and if we hadn’t helped him fix this issue and fast, this story would be a very different one today. 

Ange
Yes, I remember this guy. We implemented a debt collection system, and we were able to pull in 95 percent of that 180K within two months. 

Andy
Thankfully, taking action on our advice, Literally turns their cash flow around in a super short time. But the question needs to be asked, how did they get in this situation in the first place? Why do so many of us tradies struggle with cash flow?

Ange
Well, there are a few common reasons. And first up, I’d say not invoicing promptly. It’s all too easy to finish a job and simply move on to the next job. It’s almost like once a tradie finishes the actual job, they have mentally moved on to what’s next. But they have forgotten the most crucial part, which is getting paid. 

Andy
And when you leave the invoice part, by the time you get around to doing it, you’ve probably already forgotten some of the specifics of the job. This can lead to errors on the invoice, delays in sending it out. And we all know what that means. Delays in getting paid. 

Ange
Aha. Plus. The longer you wait, the more your customer’s sense of urgency to pay diminishes. You’ve moved on, so they have too. You’ve lost the power to influence the immediacy of being paid. 

Andy
Not to mention, delaying invoices can cause a domino effect. If you’re not sending out invoices promptly, your cash flow takes a hit. And when cash flow is tight, it affects your ability to pay your suppliers, employees, and other business expenses. 

Ange
A lot of the time, the root of the issue is that they took so long to draft and send the invoice that the customer thinks that there’s no rush to pay because it took weeks or worse, maybe even months to receive the invoice in the first place. Why would they pay quickly if you took four months to invoice? 

Andy
We actually have another brand new member that I had a chat with the other day. He had three hundred  invoices from the last three months yet to be set out to his customers. That is crazy. 

Ange
Ouch, now that hurts. They’ve definitely got some work to do. Three months of backed up invoices is not okay. 

Andy
Yeah, I was a bit in shock when he first spoke about it. But my first thought was, what the hell, mate? But of course, the first step to fixing these things is acknowledgement and you need some help and guidance along the way as well.

Ange
Yeah, I agree with that. You know what, I’m super proud that they joined Lifestyle Tradie to help turn their business around. There are quite a few things we need to work on, but this is by far the first that is critical.

Andy
I can definitely empathize with their situation. Sometimes you just get so busy, you’re working your absolute ass off and you’ve hardly had time to scratch yourself. And when invoices just keep piling up, sometimes it’s really overwhelming and you don’t even know where to start. 

Ange
Well, to be fair, some of you might be saying, that is just so obvious. Just invoice the jobs to pull your money in. But I bet there are a few of you out there saying, um, that’s me right now. Well, I haven’t done that either. When you simply have so much on your to do list, what do you do first? It’s a problem faced by every trade business owner. 

Andy
And it shouldn’t be a hard decision, this priority order thing. That’s why we’ve designed the Lifestyle Tradie Roadmap, so that you simply follow the steps to build a successful trade business.

Ange
Yeah, we’ve given them guidance on exactly how to do this. So I’m really looking forward to our next chat with these guys. 

Andy
Talking about horror stories about invoicing, this reminds me of a plumbing mate of mine that once held off invoicing before Christmas. 

Ange
Oh my God, I remember this story. The one time of year that I’d say you need the money most.

Andy
He was saying to me he had a good back end of the year, but he had an invoice for $35, 000. But instead of invoicing the customer right away in December, he said to me, you know what, Andy, I’m going to leave it until January. I know money’s going to be really tight in January and I’m just going to invoice then. I was like, are you serious? What the heck? Who does that? But his excuse was that the boys were taking that extended period over Christmas and he wanted to have a genuine cash injection.

Ange
Oh dear. 

Andy
Essentially, he was just gonna leave the cash sitting there in the customer’s hands instead of his.

Ange
But the job was Before Christmas and the customer had put aside the money to pay immediately. So by the time they received that invoice at the end of January, I bet they already had spent the money. 

Andy
Exactly. And now you as the tradie are left waiting extra weeks for that $35, 000 to come in. And now you’re stressing about paying staff, wages, or supplier invoices.

Ange
And for a maintenance style business, even that is enough to tip you over the edge. 

Andy
It definitely sounds like sleepless nights to me.

Ange
Yeah. Oh my gosh. It also makes me question money management skills, right?  Why wouldn’t you just get paid ASAP?  Are you afraid you’ll spend it? And therein lies a much deeper problem, your personal relationship with money.

Andy
Even today, I just can’t understand how someone could even think like that. 

Ange
That, that was even normal. 

Andy
Oh, crazy. Look, money is a loaded topic for many people. Not everyone grew up understanding money and not everyone was taught how to manage it as well. So even if you work your ass off and make a ton of money, If you don’t understand how to manage it, you make stupid decisions. Like waiting until the new year to invoice for jobs. Absolutely ridiculous. 

Ange
Well, it’s like a form of self sabotage I’d say.

Andy
Yes.

Ange
But the fact that you’re listening to this as the first step to becoming aware of your money situation in your business and now making better decisions moving forward. 

Andy
Another major issue I see in the trade industry is having this task of collecting money as a low priority. Let’s face it. Chasing invoices is everyone’s least favorite job. You’re too busy on the tools focused completely on getting the job done to worry about invoicing or debt collection. 

Ange
Well, and then there’s the lack of follow up. No systems in place, no one’s responsible for chasing up the payments, and if it’s not you, then who? Many avoid this task because they actually don’t want confrontation. 

Andy
They stick their heads in the sand and hope the money comes in eventually. 

Ange
Um, but hope isn’t a strategy. The result is cash flow issues. You end up with a growing list of debtors, money owed to suppliers, and suddenly you’re acting like a bank for your customers.

Andy
And let’s not forget, once the job is over, you lose leverage. There’s no urgency for your customers to pay because the work is already done. They’ve got what they needed and now it’s left up to you to chase for the money. 

Ange
Yeah. Ouch. We explain this in detail, actually with a model called the payment leverage timeline. So think of it like this. When you have leverage and hence all the power of the flow of money, you’re considered in the green zone. And when the job is complete and you leave without any payment, the power now is in the hand of the customer. And now you’re clearly in the red zone. 

Andy
We have shared a great visual on this payment leverage timeline with the red and green zones in our free download today. The download is called Debt Collection for Tradies and it’s linked in the show notes or on our website under the Free Resources tab. 

Ange
Okay. So let’s talk this through. Imagine a timeline of one job. So at the start of the job, you hold all the power, all the leverage. You’ve got something the customer wants, which is your skills and your services.

Andy
And at this stage, you’re in the green zone, meaning you have all the power. This is the time to establish clear payment terms and conditions. Follow the core converter steps and ensure everything is communicated and approved upfront. 

Ange
Yes. And on completion of the work, if you’re unable to collect payment, you quickly move into the red zone, a.k.a  the customer has all the power. The reality is the urgency for the customer to pay diminishes once their problem is solved. You’ve left the site, there was no request for payment, so now it’s an afterthought. 

Andy
There are steps you can take to prevent this from happening, but today we’re focusing on what to do if you’re already in the red zone. You’re in trouble and we need to fix it, fast. 

Ange
Yeah, look, here’s the hard truth. Sometimes you just didn’t get a choice to end up in the red zone, right? Maybe you work with the likes of commercial customers or maybe strata real estate and they’re what we call pay later customers. The point here, however, is if you don’t act quickly and efficiently, you’ll find yourself with a long list of outstanding invoices and a cash flow crisis. The longer you wait, the harder it becomes to collect those payments.

Andy
And that is why it’s crucial to implement a systematic approach to debt collection. This isn’t just about calling up and asking for money, it’s about having a structured process that ensures you’re following up consistently and effectively.

Ange
There are three basic but critical steps you need to take to pull in your debt. ASAP. These steps will help you regain control, ensure prompt payment, and keep your cash flow healthy. 

Andy
Okay, step one, invoice the same day. This might sound obvious, but it’s something many of us tradies completely overlook. First and foremost, Invoice on the job before you leave the site where you can. But I understand with some customers you have no choice but to invoice and wait for payment. 

Ange
Well, the challenge we see is it’s all too common for tradies to think, job’s done, move on to the next, when in fact this job has not yet been invoiced nor paid. It’s not over. 

Andy
Yeah, that’s right. And while the details are fresh in your head or the head of your technician, you’ve got an invoice on the same day. 

Ange
Yeah, look, you might have a system that you as the owner want to check the invoice before it’s sent, and that’s fine. Just make sure your tradie is completing the invoice by adding any materials while it’s fresh in their mind.

Andy
I know when I’ve had to call one of my boys in the early days about a job, because I’d seen on the yellow job card and their shocking handwritten note, knowing for well, they had missed materials. It kind of went a little bit like this. I rang him up and said, Hey, Matt, you know, that job you were doing yesterday at Macpherson street in Mosman, where you did the hot water heater replacement. He was like, Oh, Oh,  I can’t really remember. I’m like, dude, 170 liter gas heater. You must remember. He was like, uh, uh. I still don’t remember. I’m like, seriously, you were there yesterday. How can staff not remember this stuff? That’s crazy. 

Ange
Case in point, these days, make them complete the job invoice in the job management system on the day they complete the job.

Andy
Exactly. Because timing is everything and you don’t want to wait until the end of the week or worse, the end of the month. As soon as the job is done, finish the invoice. 

Ange
And hot tip. Be specific about your due date. So instead of saying due in seven days, write the actual date, like 17th of January and the year. 

Andy
This really communicates a very clear deadline and adds urgency.

Ange
Yes. 

Andy
Sooner your invoice, the sooner you get paid. 

Ange
Which will help cash flow. The most important part of a trade business is to stay alive and stay on top of your finances.

Andy
Speaking of staying on top of your finances, Xero has just unveiled a new AI bot called JAX, which stands for Just Ask Xero. Very clever. We revealed this at our latest member event. And wow, it is super interesting, isn’t it? 

Ange
Yeah. It’s like a super smart financial assistant crossed with ChatGPT in your Xero software. You can ask it questions. It creates reports for you and prompts you with suggestions on how to follow up with late payments. Then it does it all for you. 

Andy
One of our members shouted out in the audience. I don’t need a bookkeeper anymore. And while I don’t think we’re anywhere near that yet, because I definitely recommend you still need a bookkeeper still, this is where AI is headed and it’s heading really fast. And if that helps you understand your finances and keep on top of them better, then I’m all for it.

Ange
Yes, absolutely. Okay. Let’s move to step two. Step two is keeping your accounts up to date in your financial package or software so that you can print the latest accounts receivable report. This is a crucial step in understanding where you stand financially. 

Andy
It’s a short story to say that without your numbers being up to date in your financial software like Xero, then you simply are not looking at the most current and accurate financials.

Ange
Yeah, that’s right. And that’s why it’s important to make sure your job management system like your AroFlo, ServiceM8, Tradify, The words those guys are seamlessly connected to your financial accounting software. You don’t want discrepancies between these two pieces of software. The data needs to be the same and the most current.

Andy
And reconciling your AR report, account receivables is the first step in effective debt collection. You need to know exactly who owes you money, how much they owe you, and for how long they have owed you. 

Ange
Yes, so a clean and accurate AR report is essential. It’s your roadmap for who to follow up and how to prioritize your efforts. Because this way you can target your debt collection efficiently and effectively. 

Andy
And step three is a weekly debt collection process. And this involves setting up a system with regular touch points.  Emails, calls and follow ups, consistency is key. 

Ange
Okay, so here’s how you might do that. Start by calling everyone and if you don’t get through, send a text message first and resend the email with the invoice with overdue in the subject title. Just make sure you edit the email to say something like, This invoice is now overdue. Could you please advise when payment will be made? 

Andy
All of this can potentially be automated through the right CRM.

Ange
Yes, but first it’s essential you understand how this could happen manually.

Andy
You know that AI can help you with this now, right?

Ange
Really?

Andy
Yeah. We’ve been talking with our Lifestyle Tradie members about using AI powered phone services for our after hours phone answering. But now they also have AI bots that can call your customers with overdue  invoices and also follow up with text messages. 

Ange
Yeah. So interesting, right? I wonder if it will turn people off or people will like it because they don’t actually have to have an uncomfortable conversation with a human that they owe money to anymore because no one likes those conversations, right?

Andy
Yeah, I think it’d be fine. But time will tell on how all this AI stuff is accepted or not. A point I want to make with whatever you do for your weekly debt collection process is this – You want to document every single interaction. 

Ange
Ah, yes. Great advice. Add notes to your AR report and your accounting software about what you’ve done and what the customer said. The goal is to create a seamless,  consistent process that makes it really easy to follow up and ensure nothing falls through the cracks. 

Andy
By implementing these really simple three steps, you’ll massively improve your chances of getting paid and keeping your cash flow healthy.

Ange
Yes, exactly. Now, they seem almost crazy basic, but we are still amazed at the number of tradies that just aren’t following these simple steps day in and day out and end up with cash flow problems.

Andy
The one thing I see constantly is a lot of tradies are like, I know, I know, I know, but if you know, and you’re not doing it, I just see it as – You’re not doing it and maybe you don’t know. So make sure you put these simple steps in place. 

Ange
Yeah. Couldn’t agree more. Okay. Now that we’ve laid out the three critical steps to pull in your debt, let’s talk about the importance of consistency and delegation, because you know what? Let’s be honest. Even the best strategies won’t work if they’re not applied consistently. 

Andy
Yeah, you need to make debt collection a regular part of your routine, not something you only think about when the cash flow becomes a problem. 

Ange
Aha, don’t wait till then. This means setting aside dedicated time every week to review your AR report, following up on outstanding invoices, and updating your records.

Andy
But here’s the thing, are you the right person for the job? Because as a business owner, your time is incredibly valuable. You might be more effective focusing on growing your business and letting someone else handle the debt collection. 

Ange
Yes, and that’s where the delegation comes in. Look at your team and see if there’s someone who can take on this responsibility. Someone needs to actually be held accountable for this job. Train them on the process and make sure they understand the importance of consistency.

Andy
And if you don’t have the capacity in house, then automate it or outsource it. There’s software available and external companies that specialise in doing this debt collection for you.

Ange
Exactly. And automation tools can send out reminders, follow up emails, and like we mentioned before, can even track when invoices are open. This takes a lot of the manual work off your plate and ensures everything is followed up in a timely manner. It also ensures nothing slips through the cracks. 

Andy
And if things ever escalate, don’t hesitate to bring in external help. A professional debt collection agency can be worth the investment, especially for those stubborn invoices that just won’t get paid.

Ange
Yes. So remember the goal is to create a system that runs smoothly without you having to micromanage every detail. 

Andy
It’s all about having the right systems in place and making sure they’re followed every single week.

Ange
Consistency and delegation will help you maintain a healthy cash flow and reduce the stress of unpaid invoices. By implementing these strategies, you’ll take control of your finances and ensure you get paid first and fast. 

Andy
It’s Tradie Dilemma time and this is our Q&A segment where you let us know what you’re having trouble with in your business and we give you our best advice. 

Ange
Okay, so today we have a question from Lisa in Queensland and she writes, “Our  marketing efforts aren’t bringing enough leads. We’ve tried social media ads, flyers and word of mouth but nothing seems to be working. What are we missing?” 

Andy
Yeah, we hear things like this all the time. I’ll say the first thing that most businesses do and why it’s tough to get work in the door is they’re not consistent. When you’re really busy and you don’t need work, you do nothing when it comes to marketing and then all of a sudden you get quiet. So you try and turn on your marketing and you scramble and marketing like social media, flyers and word of mouth that takes time to build. So you’ve got to make sure your foot is always on the accelerator and you never stop when it comes to marketing. Now, if you want to market fast and spend big dollars, probably the only marketing out there that’s really reactive is AdWords. Now we all know AdWords can cost an absolute bomb at the moment. So what Ange and I like to do here at Lifestyle Tradie is we go back to the basics of marketing and we work on them first.

Ange
I definitely would add that you need to pancake all different types of activities for marketing. So marketing isn’t just about Attract Strategies. So we need to look at Attract, Convert, Deliver, and Retain. So I would definitely be saying to you, Lisa, we’re not quite sure what trade you’re in, but if you’re sitting on a database of customers that you’ve worked with for years and years, that is an absolute goldmine and you must be starting there first. They already know, like, and trust you. They would definitely say yes to you coming back inside their house if you have that opportunity. And they would definitely refer you if they’ve had a great experience. So let’s not just look at Attract marketing. We need to look at all of it. We bundle sales and marketing, and then we need to do one, implement it really well, make sure the team is doing it all the time, and then we start pancaking so that we have a minimum of 10 attract strategies, 10 convert strategies, three delivered strategies, and at minimum three retention. But we could definitely be doing more than that. We just need to do them, be consistent and keep pancaking so that you’re getting leads from multiple places at all times.

Andy
Oh, that’s a great question, Lisa. So thanks for writing in. Remember, if you have a question or dilemma in your business, Reach out to us and let us know what we can help you with.

Ange
See you next week.  

Andy
Subscribe to The Tradie Show, wherever you get your favorite podcasts. Rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.