Having a detailed and well-documented process for collecting overdue payments is essential to the success of any business. Otherwise, you can quickly lose control of your accounts receivables and may end up with a major cash flow problem.
However, a couple of factors prevent business owners from actually establishing a proper process for debt collection. These usually come in the form of awkward and uncomfortable questions such as:
- How do I approach the clients?
- How will they react?
- Will asking for payment negatively affect our relationship?
And of course, the clincher:
- Will they still respect me afterwards?
These questions can be overwhelming and discouraging, especially if you’re new to the task. But you must remember that what you’re doing isn’t a bad thing. Your business provided a product or service and the customer has not yet paid you within the agreed terms. So, it is well within your rights to follow up and ask for payment.
Here are some more tips on how you can prepare for successful debt collection:
- Pick the right time to approach your clientsIt’s really all about timing. Call your client when the invoice has just fallen overdue as this will be just like you’re following up if they received the invoice. Most likely, they will give you the excuse that they didn’t get it and ask you to send it again.Make sure you are prepared to email them a soft copy of that invoice while you’re on the phone, so you can confirm that they received it this time. Also, while you’re on that call, be sure you get the following details:
- The name of the person you’re speaking with
- The expected payment date
Moreover, remember to document the conversation for future reference.
- Always treat clients with politeness and respectJust because your customers haven’t paid on time, doesn’t mean they are bad clients. Most of the time, late invoices are caused by pure oversight on your customer’s part, so it’s important that you maintain professionalism when speaking to them. Always treat them with politeness and respect, whether or not they react positively to your call and reminders. This way, you can get paid and still remain good business partners in the future.
- Aim to strengthen your business relationshipSome business owners worry that asking for payment of unpaid invoices is the first step to damaging their relationship with their clients. They think this will give their customers the impression that they are only after the money. But this doesn’t have to be the case.If done well, debt collection can help you build better business relationships with your clients. It can help you identify and smooth out any hiccups that have caused delayed payment and ensure that such delays are avoided in the future. This effectively helps you improve communication between you and your clients so you can continue to work well together.
- Send consistent reminders and be patientGetting your clients to pay you on time is the trickiest part of the debt collection process. But you can accomplish this through repetition and patience. You will need to provide consistent follow ups through phone, email, and other methods.If your debt collection policies and procedures are well-established at the beginning of your client relationship, and if you communicate with them clearly and consistently, you will have a much higher chance of getting paid on time.However, if you’re still having issues with receiving payment on overdue invoices and you feel you have exhausted every avenue, the matter will likely need to be escalated. The sooner that is done, the sooner you will be added to the top of the queue for payment. Even better, once you have a clause in your contract allowing you to add Debt Recovery costs when an Invoice becomes overdue, these costs can be added on top of the overall debt.If you want to know more about how to create and implement effective debt collection process, call Liam White for a free consultation at 02 9191 4518.
Liam White joined the Slater Byrne Recoveries team in early 2013. He has worked across the credit & dispute resolution industry for a number of years. He is currently working in a Marketing/Head of Sales capacity at Slater Byrne Recoveries.