When a company provides a product or service, it has a right to expect to be paid on time. However, anyone who has been in business knows that prompt payment is not always the case. Often, accounts get seriously past due, or when payments are made, there may be insufficient funds in the customer’s bank account to cover a check. Invoices not paid within terms can dramatically negatively impact the “cash flow” of a business.
1. Have a Defined Credit Collection Policy
One of the major causes of overdue receivables is that the business has not explained to its customers and staff when accounts are to be paid. If customers are not educated that their accounts are to be paid on time, then chances are they’ll pay late or, sometimes, not at all. Ensure that your company’s payment terms are clearly stated in writing to each customer. Have you defined acceptable payment arrangements?
2. Invoice Promptly and Send Statements Regularly
If you don’t have a systematic invoicing and billing system, get one. The customer often hasn’t paid simply because they haven’t been billed or reminded to pay promptly. This situation usually occurs in smaller or newer businesses, where they may be short-handed on staff needed for timely invoicing and billing. How is “returned mail” handled, if any?
(STEP 1: 1st Party REMINDER service, done in your name, we can help!)
3. Use USPS – “Address Service Requested”
One of the most challenging collection problems is tracking a customer who has “skipped”. All businesses should be aware of a special service that the US Postal Service offers. Any statement or correspondence sent out from a business or professional office should have the words “Address Service Requested” printed or stamped on the envelope, just below your return address in the top left corner. Suppose a statement or invoice is sent to a customer who has moved without informing you of their new address, and the words “Address Service Requested” appear on the envelope. In that case, the Post Office will research this information and return the envelope to you on a yellow sticker that gives the new address or other updated information. If the customer has placed a “forwarding order,” we suggest you check with your local Post Office to see what additional options you may have for follow-up. This will help you keep your address files up to date.
4. Contact Overdue Accounts More Frequently
No law says that you may only contact a customer once a month. The old adage “The squeaky wheel gets the grease” has great merit when collecting past-due accounts. It’s an excellent idea to contact late payers every 10-14 days. Doing so will enable you to diplomatically remind the customer of your payment terms.
Ask them how much they are short of. That statement will put pressure on them to at least put some payment today.
5. Use Your Aging Summary Report, Not Your Feelings
Many well-meaning business owners (or staff members) have let an account age beyond the point of ever being collected because of the “feeling” that the customer would pay eventually. While there are isolated cases of unusual situations, the truth is that if you aren’t being paid, someone else is. Stick to your systematic follow-up plan. You’ll soon identify who intends to pay and who doesn’t. You can then take appropriate actions.
6. Make Sure Your Staff is Well-Trained
Even “experienced” staff members can sometimes become jaded when dealing with past-due customers. This usually happens when debtors have broken promises for payments that have been made previously. Make sure the staff is firm yet courteous when dealing with them. Your entire staff could benefit from customer service training because, in effect, they must “sell” your customers on the idea that you expect to be paid. Make sure that your collection staff is trained to both bring the account to its current status while also maintaining “goodwill” with the client base.
7. Admit any Mistakes on Your Part and correct them ASAP
Sometimes customers don’t pay because they feel you’ve made a mistake. If you have, quickly admit it and correct it. Your customer realizes that mistakes can happen in business. Unfortunately, many customers believe that the owner or president “doesn’t need the money.” Denying an obvious error only fans the fire of resentment that your customer may already feel.
8. Follow all Federal and State Collection Laws
In many states, businesses are governed by the same collection laws that regulate collection agencies. For example, calling customers at an odd hour or disclosing to a third party that the debtor owes you money are just a couple of the numerous collection practices that can cause serious repercussions. If you’re unsure, call your state’s finance department, which governs and monitors collection agencies.
9. Use a Third-Party Sooner (Collections Agency)
If you’ve systematically pursued your past due accounts for 60 to 90 days from the due date (and they still haven’t paid), you’re being delivered a message by your client. You’ve likely requested payment four to six times through phone calls, letters and statements. Statistics show that after 90 days, the in-house collection effort loses up to 80% of its effectiveness. That means that the time and financial resources budgeted for collection efforts should be focused on the 1st 60-90 days when the bulk of your accounts can and should be collected. From that point on, a 3rd party can motivate your client to pay you in ways that you cannot, simply because the demand for payment is coming from someone other than you. Before paying a contingency collection agency, an attorney, or using a small claims court, why not explore using a fixed flat-fee collection service?
STEP 1 ( 1st Party Reminder Service) & STEP 2 (3rd Party Service) for a Fixed Flat-fee of about $15 per account, regardless of the amount owed or where the debtor is located in the U.S.!
STEP 3 is a contingency service.
10. Remember that Nobody Collects Every Account
Even by setting up and adhering to a specific collection plan, there will still be a few accounts that will never be collected. Identifying these accounts early will save you and your company a great deal of time and money. Even though a few may slip by, you’ll find that overall the number of slow-pay and nonpaying accounts will greatly diminish, and that’s a victory in itself!
11. Hunt for positive signs:
If a patient/customer says he cannot pay the remaining amount in full, take it positively. At least he called himself and has the intention to pay. Negotiate what he can pay today and the remaining amount later. The lesser the amount is past due, the easier it will become to resolve it later. Hanging the phone down without a proper payment plan will push that account toward default.
12. Charge Late Fees:
Extending credit to customers is often necessary for Small Businesses, but it has always been a trickier call to impose a late fine or not. Slipping a late fees clause in your credit policy is easier when you initially sign the agreement with a client because, typically, no one expects to pay late when the agreement is signed for the first time. Having a late fee discourages your customer from making late payments. Customers are also likely to clear those bills first where a late fee will be charged. Late fees also covers the cost of that extra effort you make to follow up with them and finally, it adds up to your bottom line. Even if you waive off the late fees as a goodwill gesture once or twice (or always), it will improve your relationship with them since you did a favor to them.
13. Offer multiple payment methods
Provide an online payment portal because people prefer making payments from the convenience of their home rather than walking to your business location. We believe younger people don’t like to mail a check or give credit card details over the phone, fearing misuse. Accept credit card, Paypal, eCheck, FSA or ACH.
14. Provide longer human support hours with shorter wait times:
Let people call you and discuss how and when they can pay. Let them talk to a real person without waiting for long hours and clarify any queries they may have. Offer them flexible payment options and possibly waive off 10% of the balance if they can pay in full.
15. Have a bank reference or trade check done
If you are about to make a large credit sale, have a bank reference or trade check done. For medium-sized deals, perform credit checks before you extend credit to customers; it is a small investment with significant benefits.
16. Form a pool of buyers
If you can create a group of like-minded buyers, you can save 10% with the group-buying tactic. Also, check if suppliers are willing to give a decent discount if you pay them in advance rather than in installments.
17. Utility cost recovery & Cost segregation study
You can reduce your utility bills by up to 10-15% for the same energy used. Some experts work on a contingency basis and legally reduce your utility bill (electric, gas, even phone bill), even get you a refund for the past three years.
Similarly, you can claim faster property depreciation legally from IRS and improve your cash flow by hiring cost segregation professionals who do a “cost segregation study” for your property.
These result in savings of thousands of dollars annually for most small businesses.
18. Use a higher-interest bank account
Put all your extra cash in a high-yield savings account rather than an old-bank one. Extra interest earned will also add up towards your cash flow target.
Improve your reporting process by monitoring your organization’s key performance indicators (KPIs). A perfect way to understand your finances is to generate an outflow/cashflow chart from your accounting software. For an optimum cash flow, one must try to regulate the cash on hand for three to four months of expenses.
19 Use a Line of Credit Wisely
Establish a line of credit before you need it and use it for short-term cash flow boosts. Be cautious not to overextend yourself.
20 Extend Payables
While getting money in faster, also try to extend the time you have to pay your bills. Negotiate better terms with suppliers without compromising relationships.
21 Improve Inventory Management:
If your business holds inventory, make sure you’re turning it over quickly and not carrying excessive stock. Holding too much inventory ties up cash.
Conclusion
Most tips mentioned in this article are already known to every business owner. Just that we forget to implement them. The fact is that every bit counts when it comes to cash flow.
If you need a collection agency to handle your accounts receivable: Contact Us