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In today’s competitive environment, past due accounts result in a substantial financial drag on small businesses. 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 regular customers or vendors can be very tricky. Demanding for unpaid bills and yet continuing to maintain a business-friendly relationship requires a well thought out diplomatic approach.
Soft Approach vs. Firm Approach, which works better?
A general rule is – 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.
Simply talk to the point and diplomatically.
Try yourself for the first 30-60 days – The right way ⚡
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 temporary business circumstances. For example, an officer who issues check could be on leave, a non-serious cash flow crunch in the client’s company that is temporary in nature, or may be the client never received your invoice or lost it.
Politely send another “reminder” invoice by “certified” mail, keep a copy for your records. You should also 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 without you even asking for an explanation, or they may simply say that the payment will be issued today or tomorrow.
If the client appears to be deferring the payment or giving false excuses, take it as a big warning sign. Keep this account under watch. If the payment does not get issued soon, you will need to promptly assign this account to a collection agency.
Your staff should also be informed in advance to be extremely professional and diplomatic with those clients who you want to keep long term business relationship.
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. 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?“.
I always believe that apart from requesting payment from your clients, do tell them that your own small 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 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?
If getting paid for your products or services has become an ongoing problem, start looking out for other business partner / supplier, who do not have a cash flow problem. Since doing business with them 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?
Ask politely “Sir, may I know the reason for delay in making payments?”. Although you can never be sure if the reason given by your client is true or not. Keep notes of what client says during each call. Be mentally prepared for all kinds of excuses. Be patient and listen to your client, they will likely tell you when they will be able to pay before the call ends.
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 works.
6. Control your anger
Speak less and to the point. Be a good listener. Regardless of the circumstances, never sound harassing, never try to threat your client or lose your temper. It can result in a counter legal action against you.
7. Give them option to pay in installments
Has it been over 3-4 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.
Still No Success .. now what ? ⛔
Hire a good Collection Agency – Don’t waste time
8. Situation cannot be resolved amicably now.
Lets say, the Client has failed to make payment on the recommitted date too. He is avoiding taking your phone calls, needs even more time to clear your payment, has started to unreasonably dispute your services or other excuses which clearly indicates that you are not going to recover your money easily. These things indicate that the line of an amicable solution has likely been crossed. Let an expert collection agency deal with the situation. Involvement of a Collection Agency is a game changer.
9. Don’t waste time:
If you remain on the sidelines whether to transfer an account promptly to a collection agency or not, the situation will only get worse. Approach a collection agency or a collections law firm if it has been between 50 days to 60 days since your payment was due.
Statistics prove that longer you wait, harder it becomes to recover that amount. Involvement of a professional collection agency automatically puts astronomical pressure on the client, plus good agencies have many 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 in the 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.