There’s an built-in tug of war between business customers and business suppliers. Both of you are constantly worrying about cash flow to pay suppliers and workers and keep the company moving forward. That means hanging on to your money for as long as possible and trying to get the other guy to pay as quickly as possible.
Late payments are a fact of life in the commercial world. In a 2011 survey conducted by Rocket Lawyer, one in four small business owners, out of 937 contacted, had trouble collecting. In fact 43% had customers that were 90 days late. Almost half have had to write off bad debts.
To handle overdue payment problems, you need to have a system in place. This takes the emotional sting out of collection attempts and keeps good customer relations. You stand a much better chance of collecting past due amounts quickly with firmness, clarity and patience than you do with shouting matches.
Here are five steps to incorporate into your collection system that will make the process go smoothly and calmly.
Step 1. Be clear about the situation.
Is your customer really late? Don’t embarrass yourself by asking for payment if you don’t know the facts. Before contacting your accounts receivable, make sure the invoice sent was correct and that, in fact, it was sent. And check that the actual due date has passed.
Step 2. Set up timeframes for action.
Decide how long before the first contact. Many companies wait for two weeks past the invoice due date before sending a reminder. After that reminder, figure another two weeks, then weekly after that.
Step 3. Prepare an email or regular mail template.
Write a professional, non-judgmental email that reminds the customer that payment is due. You can also download templates at several websites.
Step 4. Prepare a script for phone or in-person contact.
If the payment is very late, you need to make personal contact. Find out who is the person with authority to pay the bill and contact him.
Bring your listening skills. This is not easy and some people are not naturals at it. If you have a born negotiator on your team, have him do the collections.
The process takes time and effort if you want to keep the customer and get your money. Find out why the money is late. Do you need to set up payment schedule? Can you trade services as a way to reduce the bill.
Feel comfortable stopping future deliveries until you actually see some money. Your customer will expect this.
Step 5. Protect yourself.
If nothing works, hire a collection agency or see an attorney. You can only make a certain number of concessions. If your customer is making no progress on the bill, protect yourself by pursuing collections more aggressively. This is best done by an agency that specializes in the process or an attorney.
It is essential that you have business insurance to protect you from non-paying customers. This can provide a critical buffer when overdue bills or invoices that will never be paid take a big chunk out of your working capital.
