An overflowing stack of overdue invoices is an all-too familiar problem for business owners. It’s quite an easy trap to fall into. At first, you think you’re just cutting your client some slack because they’re having a difficult time and the debt they owe isn’t really that big. Besides, you’ve got more pressing business matters to attend to and you can always collect the payment later. But these invoices can quickly pile up and before you know it, your company is losing thousands of dollars annually because late payments or worse, unpaid debts.
The good news is that this issue is absolutely avoidable. By making some simple adjustments to your collection process, you’ll be able to significantly reduce late payments while maintaining a good relationship with your clients.
This may seem like a no-brainer, but you’d be surprised at how many businesses fail to keep track of their receivables. This is mainly because after making a sale, companies tend to move on to other more important things, such as finding another client or project. They often feel confident that issuing an invoice and receiving assurances of timely payment is enough, especially if they’ve been doing business with that particular client for a long time.
Aside from lack of cash, there are many other possible reasons why your clients are not paying their outstanding balances on time. These include:
If you notice, these reasons are things that you can actually do something about. You need to discover exactly what is causing your client’s late payment so you can figure out how to resolve them and keep them from happening again.
A simple email reminder can go a long way in getting your invoices paid on time. Emails can also help you resolve the most common reasons of late payments that were mentioned above.
It would be best to create a system of emails that starts off with a gentle reminder that is sent perhaps a week before the due date. This can then be succeeded by a follow up a few days later and ending with a message a day before the due date. You can schedule these emails ahead of time using a certain app or software so they’ll be sent automatically to clients on your list.
If you still don’t hear from clients after a couple of friendly reminders, it’s time to take a firmer approach. You can either give the client a call or send a more serious email, where you mention that legal action will be taken if the customer still fails to settle their debt as soon as possible. Depending on your credit terms and conditions, you can also state the charging of collection costs due to late payment.
If your firmer emails still don’t get you the response you want, you can send out a demand letter. This is effective way to make clients understand the gravity of the situation and show them that you’re not just going to forget about their overdue balance. Make sure your demand letter includes a copy of the invoice/s in question, information about the unpaid account, and your contact details.
This is key to the success of your collection process. Once you’ve sent your firm payment reminders, you must be prepared to take the actions you threatened to do in your emails. It’s important that you show clients that you’re not all bark and no bite. Otherwise, this will set a precedent and negatively affect future payments.
Just like any other business process, credit control and payment collection needs to be constantly updated. You need to take a step back and find out if your current system is working. Then, determine ways to improve its efficiency. For instance, you may need to adjust your credit terms and conditions to specify how long debts will be overdue before legal action is taken.
You can also add payment plans to allow your clients to slowly but surely settle their debts. Another strategy is to have clients sign a Director’s Guarantee if they’ve had a history of late payments or if the amount they owe is very high.
Get in touch with us here at Slater Byrne Recoveries for more tips on how to improve your credit control process.
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