In today’s competitive environment, past due accounts result in a substantial financial drag on any small business. If the issue is not resolved promptly, it can gradually snowball into a huge mess.
- It will result in a negative cash flow for your small business.
- Restrict the ability of a small business to continue with its normal operations.
- Delay in providing salary to own employees on time.
- Even hamper the ability to make payments to own suppliers.
Collecting unpaid bills from your customers can be very tricky, especially if you share a long term business relationship with them. Requesting to clear accounts receivable, yet continuing to maintain a business-friendly relationship requires a well thought out diplomatic approach.
|Contact us if your own efforts have already been exhausted and now you are looking to hire a good debt Collections Agency.|
Soft Approach vs. Firm Approach, which works better?
Simply talk to the point and diplomatically. Keep your conversation short.
Do not try to be extremely soft and personal with the client, only to be taken for granted.
Similarly do not interact too firmly or appear indifferent to their problems, this may irritate the client and they may intentionally delay your payment even further.
Have a well planned in-house strategy for accounts receivable ⚡
1. Has this happened for the first time?
There is a fair amount of possibility that their delay is due to an oversight, glitch or a temporary business circumstance. For example, an officer who issues check could be on leave, a non-serious cash flow crunch that is temporary in nature, or may be the client never received your invoice, or lost it.
Quietly send another “reminder” invoice by “certified” mail, keep a copy for your records. Then make a phone call the day after the client receives your “reminder” invoice. Say something like this .. “Sir, may be you did not get our invoice last time, therefore we have re-sent it.“, then carefully listen to what the client has to say.
Client will likely give you the reason of non-payment, even without you asking for an explanation. If it was simply an oversight, they may simply tell you that the payment will be issued today or tomorrow.
But, if the client appears to be deferring the payment or giving false excuses, take it as a warning sign. Keep this account under watch.
Now, your staff should also be informed in advance to be extremely careful, professional and diplomatic with these clients. Since you have a doubt now regarding their ability to make timely payments in near future, have a strategy to prevent their debt with you ballooning further.
2. Has the client started to repeatedly delay payments?
There is likely a bigger problem brewing at your client side. May be the clients own business is not doing too well. You should find out. Politely ask “Sir, we have been doing business with you for “X” number of years and getting payments was never a matter of a concern earlier, would you mind sharing with us what has changed recently?“.
Apart from requesting payment from your clients, do tell them that your own business is also facing problems because of this non-payment. It could be even as simple as this “Sir, since your payments have been delayed, it has created some cash flow problems for us as well. We run our small business on thin margins. I request you to clear our bills at the earliest“.
Showing your problem will convey that its not just your own eagerness to get paid, but there is a compelling business need behind it.
3. Do you have a better alternative?
Since getting paid for your products or services has become an ongoing problem, start looking out for other business partner / supplier, who does not have a cash flow problem. Doing business with your current client has become too risky, its the right time to cut the cord and minimize your losses.
4. Do you know the real reason behind these non-payments?
May be another client contact will disclose the reason of non-payments. Although you can never be sure if the reason given by your client is true or not. Remember or keep notes of what client says during each call. Be mentally prepared for all kinds of excuses.
5. Show faith in your client. It helps.
Create a good relationship so they will want to pay you first because there may be other parties like you who are also waiting to get paid.
“Sir, we have been doing business together for a while, we have great trust in their organization“. Call it “moral faith” or “moral pressure“, but it really works.
6. Control your anger
Speak less and to the point. Be a good listener. Regardless of the circumstances, never sound harsh, never try to threat your client or lose your temper. If you annoy them, it may delay your payments further. In worst case a threatening language can even result in a counter legal action against you.
7. Give them option to pay in installments
Has it been over 4-6 weeks past the payment due date and the reminder invoices have not worked? Now try giving your client an option to pay in installments. If that fails too then stop taking more stress, matter is beyond your own hands.
That’s it .. now what ? ⛔
Transfer this account for Collections – Don’t waste more time
8. Situation cannot be resolved amicably now.
Client has repeatedly failed to make payment multiple times despite reassurances . He is probably avoiding taking your phone calls, needs more time to clear your payment, has started to unreasonably dispute your services or other excuses.. Time is up.
Let an expert collection agency deal with the situation. Involvement of a Collection Agency is a game changer.
9. Don’t waste time: ( “Really-Really” Important)
If you remain on the sidelines whether to transfer an account to a collection agency or not, the situation will only get worse with time. Approach a collection agency if your payment has been due for over 60 days.
Statistics prove that longer you wait, harder it becomes to recover your money.
Involvement of a professional collection agency automatically puts astronomical pressure on the client. Collection agencies have many tricks and legal ways to collect money which you may not know.
Most commercial collection agencies will not charge you anything till your money is collected. Depending on the amount owed and circumstances, collection agencies charge typically between 30% to 50% of the amount they are able to collect. Fully understand the fee structure before hiring a collection agency.
|Cost of hiring a collection agency and information about their services is mentioned here. This includes Collection Letters, Collection Calls, Skip Tracing, Various Scrubs, Legal, Advanced Skip Tracing, Diplomatic Contacts, Credit Checking, Credit Bureau Reporting, and a lot more. |
Contact us for your small business debt collection needs.
10. Maintain proper proof of the services/products delivered and communications thereafter.
Keep all invoices, proof of goods or services delivered, and copies of reminder invoices sent by you. Also keep a copy of communications done via email and date/time of phone calls made by you to your client and what they have been telling you. Put all this information in the “Notes” section of your Collection Agency’s debt assignment form.
11. Take legal action.
Depending on your situation your collection agency will advice you if filing a lawsuit is advisable or if they want to try to solve the situation amicably in their own way.
Obviously, there is no guarantee that your business relationship with the client will remain intact, but a step by step approach will increase the chances of resolving things in a nice way.
To minimize Accounts Receivable in the first place:
If your are about to do a large sale on credit then have 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 big benefits.