Improve your debt collections
Do you find that despite your best efforts to charge customers up front and to plan for the worst, bad debts still cause major problems for your business?
Many business owners find that continual late payments – and the ability of large customers to decide to pay as and when they want to – can contribute to negative cash flow. We look at ways to improve your debt collections and, hopefully, to ease your cash flow difficulties.
1. Choose the right customers
Be selective about the organisations with which you intend to do business. This can be difficult if you are dependent on a few large customers or if your customer base is dwindling, but once your business has reached a manageable level of stability it is a good idea to research all prospective clients. You should:
- obtain credit references on potential customers
- avoid doing business with companies with poor credit ratings
- ensure that the prospective customer knows your payment terms from the outset
2. Implement a debt collection policy
Establish a policy to ensure that you keep control of debt collection. Develop a set routine, such as the one outlined below. This will prevent the build-up of a pile of unsorted, unorganised bad debts.
A typical debt collection policy
If your terms state that payment must be received 30 days after invoicing, you should…
- Invoice at the earliest opportunity, stating the payment terms clearly on the invoice
- 15 days after invoicing, telephone the customer. Thank them for their business and ask if they are satisfied with your work or product
- If no payment has been received after 31 days, send a reminder and call the customer to inform them that you are initiating collection efforts.
- Telephone the customer every two or three days. Bad debtors rely on the negligence of their creditors. Continual calling will let them know you are aware of the debt and show them that you are willing to take action.
- If there is a query or payment problem, arrange a new settlement date by telephone. Confirm this date in writing and state clearly that if payment is not made by this date, the matter will be referred to either:
- A debt collection agency
- A firm of solicitors, or
- The county court small claims department
- If the debt is still due after this, keep your word and take action.
3. Hire the right staff
Involve all of your staff in the invoicing and collections procedure. An aggressive debt-collections manager, backed by a helpful support team is essential for a successful company. Ensure that your sales team and project managers are aware of late-paying customers to establish a widespread and knowledgeable defence against bad debtors.
4. Rotate the debt collection staff
If you have several employees responsible for collecting debts, it can be effective to rotate them for difficult customers. This disorientates bad debtors and reminds them that they are dealing not just with one person but an entire company. It will also allow your staff to become more knowledgeable and flexible.
5. Make use of payment plans
Payment plans become necessary when the customer cannot pay the entire amount due in one instalment. To avoid future misunderstanding, commit an agreed plan to paper and ensure that both parties sign the document. For help with structuring a suitable payment plan, contact us and we will be happy to help you.
6. Pursue frequently late-paying customers
Let customers know that you can no longer tolerate late payments. Sometimes the interests of customer service and debt collection can clash, but it is important to convey, politely but firmly, that bad debts are unacceptable. Explain to clients that although you will willingly discuss matters to the full, further delays in payment will not be tolerated.
7. Use a debt collection agency
If the worst comes to the worst, do not hesitate to use a debt collection agency to enforce payment. If a debt is more than 90 days late, hand it over to an agency. Not only will this let the customer know that you are serious about the late payment, but it will allow you to spend time more productively on those accounts which are less overdue.
We would be happy to discuss any of the issues raised above. Please contact us for advice on suitable ways for a company in your unique position to collect debts.
Richard Place Dobson
1-7 Station Road
Tel: 01293 521191
Fax: 01293 614422
Email: [email protected]