One of the most important rules for a successful business is to swiftly collect money that’s owed to you — it should be coming in faster than you’re paying out.
This means being able to deal effectively with customers who owe you money, because the last thing you want is a protracted debt collection process that could wind up in court. It’s time consuming, expensive, and stressful. Establishing efficient systems means that not only will you get paid faster, but you’ll also reduce the risk of late or non-payers. The more robust your payment and credit systems are, the less your chances of having to chase down debtors. At the end of the day, prevention is infinitely better than a cure, so keep the following in mind:
- Offer immediate payment options: people may prefer to pay immediately, especially for a job well done. If your business offers a service that customers can pay for using a mobile payment option, then not only will you have the money faster, but you won’t have to waste time sending out and collecting on invoices. Talk to us about payment solutions including online payments, debit and credit cards, and mobile payments.
- Don’t let it wait: if you do have to send out invoices, don’t put off collecting on them. The longer you leave it, the harder it’ll be. If you have a good accounting system, you can set up a flag system so you know who owes money and when.
- Run credit checks: if you’re going to offer credit terms to your customers, check them out first. That way, you’re making an informed decision about the risk you’re taking. You can do this at Equifax or TransUnion. If you do decide to offer your customers credit, make sure you have a credit agreement in place where you’re both clear on the repayment terms.
Be careful when offering credit
You might be tempted to offer credit terms to everyone, but it’s better to be choosy when you’re deciding who to accept. To help avoid fraud, be wary of:
- Unusually large orders: watch out for customers who order small amounts, pay on time, and then place a very large order. If you do decide to accept the order, ask for a deposit or progress payments, and of course, ensure you’ve checked their credit rating.
- New customers with no credit history: if you are selling to other businesses, be careful as new start-ups often run short of cash.
Collecting debt
If your business uses invoicing payment options and you do extend credit, you’ll probably have to reach out to customers regarding their overdue accounts at some point – despite your best efforts. Before you begin debt collection procedures, make sure the debt’s valid. It’s important to confirm that you’ve supplied the correct products and services, in the right amounts, for an agreed price within a certain time frame, and of a certain standard and quality. Once you’re sure of that, it’s time to chase down what you’re owed.
Make it personal
If you can put a human face on the debt, reminding your customers that what they owe is affecting you personally, they may pay up faster. Try:
- Phone calls: speaking to your customer directly is a good way to personalize the issue, and if there are any misunderstandings, you can clear them up. Sending emails — instead of a past-due notice — that emphasize the trust you placed in them is also a good way to make it personal.
- Offer a payment plan: if your customer is in genuine trouble, offer to let them pay in increments. Make sure you draw up an agreement outlining the payment plan.
- Explain to them that the money they owe you is important for your business, and that as you don’t have stacks of spare cash lying around, you need it for your operations.If you can, try to be flexible when it comes to repayments. You could agree to accept goods for their resale value, or accept a service instead of cash.
Hire a debt collection agency
If you’re still not getting anywhere, it might be time to call in the professionals. Debt collectors are, after all, the experts, and they know what methods work. However, this is a big step because as a debt collection agency is likely to alienate a customer for good. If they’re a habitual non-payer, you might not see this as any great loss, but it’s still important to think carefully about what the impact will be on your relationship with your customer.
Going to court
This really is a last resort, and should only be used when absolutely everything else has failed and the debt you’re owed justifies the cost of a legal intervention. Speak to your lawyer about the process, cost, and potential outcome, and make your decision based on their advice.
Summary
If you want to avoid a stressful collection process, the key is to have robust systems in place to minimize the risk of having to chase debtors. You know the saying that it’s easier to prevent fires than it is to fight them; the same is true of getting paid what you’re owed.
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This content is for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. You should consult your own professional advisor for specific financial, investment, and/or tax advice tailored to your needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
