Do you find that despite your best efforts to charge customers up front and to plan for the worst, bad debts still cause major problems for your business?
Many business owners find that continual late payments - and the ability of large customers to decide to pay as and when they want to - can contribute to negative cash flow. We look at ways to improve your debt collections and, hopefully, to ease your cash flow difficulties.
Be selective about the organisations with which you intend to do business. This can be difficult if you are dependent on a few large customers or if your customer base is dwindling, but once your business has reached a manageable level of stability it is a good idea to research all prospective clients. You should:
Establish a policy to ensure that you keep control of debt collection. Develop a set routine, such as the one outlined below. This will prevent the build-up of a pile of unsorted, unorganised bad debts.
If your terms state that payment must be received 30 days after invoicing, you should…
Involve all of your staff in the invoicing and collections procedure. An aggressive debt-collections manager, backed by a helpful support team is essential for a successful company. Ensure that your sales team and project managers are aware of late-paying customers to establish a widespread and knowledgeable defence against bad debtors.
If you have several employees responsible for collecting debts, it can be effective to rotate them for difficult customers. This disorientates bad debtors and reminds them that they are dealing not just with one person but an entire company. It will also allow your staff to become more knowledgeable and flexible.
Payment plans become necessary when the customer cannot pay the entire amount due in one instalment. To avoid future misunderstanding, commit an agreed plan to paper and ensure that both parties sign the document. For help with structuring a suitable payment plan, contact us and we will be happy to help you.
Let customers know that you can no longer tolerate late payments. Sometimes the interests of customer service and debt collection can clash, but it is important to convey, politely but firmly, that bad debts are unacceptable. Explain to clients that although you will willingly discuss matters to the full, further delays in payment will not be tolerated.
If the worst comes to the worst, do not hesitate to use a debt collection agency to enforce payment. If a debt is more than 90 days late, hand it over to an agency. Not only will this let the customer know that you are serious about the late payment, but it will allow you to spend time more productively on those accounts which are less overdue.
We would be happy to discuss any of the issues raised above. Please contact us for advice on suitable ways for a company in your unique position to collect debts.