A difficult part of business is the collection of money from past due accounts. No one likes receiveing collection calls, and certainly being the bill collector is not any more attractive as a job function. There are even specifc laws on how to collect to protect people who owe you money!But, the squeaky wheel gets the grease--and doing business requires a lot of grease.
I discovered this great article by Steve Austin from businessknowhow.com with some practical advice on securing payments, keeping cash flowing and clients happy to pay you first.
1] Have a Defined Credit Collection Policy One of the major causes of overdue receivables is that the business has not defined to its commercial customers and staff when accounts are to be paid. If commercial customers are not educated that accounts are to be paid on time, then chances are they'll pay late or sometimes not at all. Make sure that your company's terms of payment are clearly stated in writing to each commercial customer.
2] Invoice Promptly and Send Statements Regularly If you don't have a systematic invoicing and billing system, get one. Many times the commercial hasn't paid simply because they haven't been billed or reminded to pay in a timely manner. This situation usually occurs in smaller or newer businesses where they're short on staff to invoice and bill.
3] Use "Address Service Requested" One of the most difficult collection problems is tracking down a commercial customer who has "skipped". All businesses should be aware of a special service offered by the Post Office. 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. If 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, 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" with the Post Office, the Post Office is required to forward the envelope to the customer and give you a form #3547 with the new address and charge you approx. 50 cents. This will keep your address files up to date.
4] Contact Overdue Accounts More Frequently No law says you can contact a commercial customer only once a month. The old adage "The squeaky wheel gets the grease" has a great deal of merit when it comes to collecting delinquent accounts. It's an excellent idea to contact late payers every 10-14 days. Doing so will enable you to diplomatically remind the commercial customer of your terms of payment.
5] Use Your Aging Sheet, Not Your Feelings Many businesses (or well-meaning people on their staff) have let an account age beyond the point of ever being collected because he or she "felt" the customer would pay eventually. While there are a few isolated cases of unusual situations, the truth is that if you aren't being paid, someone else is. So stick to your systematic plan of follow up. You'll soon know who intends to really pay and who doesn't. You can then take appropriate action once you know where you stand.
6] Make Sure Your Staff is Properly Trained Even "experienced" staff members can sometimes become jaded when dealing with delinquent commercial customers. This usually occurs when they have made and broken promises for payment. Make sure the staff is firm, yet courteous when dealing with them. Your collection staff could benefit from customer service training because, in effect, they must "sell" your commercial customers on the idea that you expect to be paid. Make sure that your collection staff is trained to not only bring the account current, but to also maintain good will with them.
7] Keep Accurate And Timely Payment Records Once a new commercial customer is accepted on credit, it is vitally important to maintain accurate and timely records on their payment history. If you see any deviation from past payment patterns, and especially if payments become unusually slow, immediate follow-up is warranted. This not only gives you an early alert to impending payment problems, it also gives you the chance for early intervention if there is an outside influence.
8] Follow the Collection Laws in Your State In many states, businesses are governed by the same collection laws as are collection agencies. For example, calling customers at an odd hour or disclosing to a third party that they owe you money are just a couple of the numerous collection practices that can cause serious repercussions. If you're not sure, call your state's department of finance which governs and monitors collection agencies under the Fair Debt Collection Practices.
9] Use a Third Party Sooner If you've systematically pursued your delinquent commercial
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. More than likely, you've requested payment four to six times in the form of phone calls, letters and statements. Statistics show that after 90 days, the effect of in-house collection efforts wears off 80%". That means that the time and financial resources budgeted for commercial collection efforts should be focused within the first 90 days where the bulk of your commercial accounts can and should be collected. From that point on, a third party can motivate a commercial customer to pay in ways you cannot, simply because the demand for payment is coming from someone other than you. Before paying a percentage to a commercial collection agency, or using small claims court or an attorney, check into using a fixed flat fee collection service.
10] Admit And Correct Any Mistakes On Your Part Sometimes your commercial customers do not pay because they feel you have made a mistake. Unfortunately, many commercial customers believe that "the owner/president doesn't need the money". Denying an obvious error only fans the fire of resentment your customer may already feel. If the basis of the non-payment is a dispute over the quality of your product or service, a mutually agreeable settlement between you and the customer should be arrived at promptly. The commercial customer may use a minor dispute to withhold substantial payment. Insist that the undisputed portion get paid immediately, indicating the balance will be negotiated. This will not only help to collect payment, it shows the commercial customer that you are listening to his or her concerns.
11] Remember that Nobody Collects Every Account Even by setting up and adhering to a specific commercial collection plan, there are a few commercial accounts that will never be collected. By identifying these accounts early, you will save yourself 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 commercial accounts will greatly diminish, and that's a victory in itself!
