7 Effective Tips on Improving Your Debt Collection, by ANN ICHUNGWA

7 Debt Collection Tips 

Businesses rely on a healthy flow of income to remain in business. For small businesses, a bad debt can mean the difference between profitability and net losses.

Outstanding payments can make or break your business, whether you're a sole trader or a multi-million dollar company.

Small business owners and sole traders can find themselves in a tight spot when it comes to chasing outstanding accounts. The business owner must pursue the money from the client, but also try to get repeat business – sometimes from the same individual. It can be challenging to walk that fine line between a happy customer and a positive bank balance.

Here are some tips for collecting all your overdue accounts, tips that I have tried and found to work:

1. Make a clear payment policy (Make your credit terms clear)

  • Before you provide any service or good, contract with your customer so that they understand their responsibilities regarding payment and when it needs to be done. Make sure all document language is clear. Discuss the account with the customer so that you can be sure that they are familiar with any charged amounts and due dates. Payment terms need to be agreed on by both parties
  • Consider adopting a late payment fee to encourage on-time payments. You may choose to charge a percentage of the total bill when payments become delinquent. Make sure all late fee policies are included in your contract or payment policy.
  • You may prefer to ask for at least 50% of payment upfront. This ensures you at least receive something in exchange for your time and efforts.


2. List the due date on every bill you send.

  • Some invoices state, "payment due upon receipt." You may also use "net 15 days," "net 30 days" or any other period of time in which you expect someone to remit payment.
  • Placing a due date on a bill encourages your customer to include it in a current or upcoming billing cycle. If you do not place a due date on the bill, the business or individual may wait a month or two before paying, especially if bills are tight.
  • Don't wait 30 days from the date of service or delivery of the product to send out a bill. Bill every 15 to 30 days. The sooner you send out the bill, the more likely you will get paid sooner.


3. Find out your clients' payment cycles

  • How soon you chase an invoice will depend on your business and your clients. Some clients chase their invoices the day they're overdue. Others know their clients will pay on a certain date – it does help to find out your clients' payment and billing cycles if you can. This prevents you from chasing an invoice that's already scheduled to be paid.
  • But don't leave an invoice for too long before starting to pursue it; from experience I have come to learn that the longer you leave the debt, the harder it is to collect.


4. Automate your invoice reminders

  • With the new technology currently available, you can set up a reminder system to automatically email your clients once an invoice hits a certain overdue date (7, 14 or 21 days) or set your own reminder. This way you make it as easy for yourself even on the busiest days.


5. Send reminder bills

  • When a payment becomes overdue, immediately send a reminder noting the amount owed as well as the fact that payment is now overdue. Many customers are so busy that they simply forget a bill hasn't been paid. They will often pay it as soon as they realize payment is overdue.


6. Keep track of your efforts

  • Once an invoice is more than 90 days overdue, you should be chasing it using more than just friendly email. Keep a spreadsheet or other record of all the emails you send, phone calls you make and even any visits in person. Make a note of what the client has promised and what has been delivered. This will be a great help if you have to hand the debt to a third party.


7. Be cautious about further business

  • Indeed we all wish to have more business from our clients, however be very cautious offering credit for persistent late payers. It would be good practice to ask for part or full payment upfront if they want to do business with you again.

I need not emphasize that cash is king. Where possible, and more so if dealing with a commodity, it would be paramount to operate only on cash basis.


Good luck on collecting your debts.

Ann - Wylde

Ann is a Financial consultant and the Head of Finance at Wylde International. She can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

 

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