Dealing with unpaid and overdue invoices is a part of business that all managers and business owners will have to deal with at some stage.
Yes it is very frustrating and time consuming, but worse than that it can really cripple your business when cash flow dries up and there are large amounts of money tied up in your accounts receivables.
The simple fact of the matter is that creating a systemised collection process is one of the most important and profitable things you can do for your business.
- It reduces overdue accounts
- It reduces the amount of time and resources you have to waste chasing up payment
- It ensures your cashflow is healthy and you avoid going out of business due to non payment of accounts
Yet still many business owners fail to invest the time upfront to set-up a streamlined and (mostly) automated collections process.
So here are some tips to help you manage overdue accounts efficiently and effectively.
Try To Get Paid In Advance
If there is an opportunity to receive full or partial payment in advance this should be explored. It’s important you find ways to justify these upfront payment terms to customers, especially if invoices for payment at a later date is standard practice in your industry.
You could even offer a small discount or bonus if accounts are paid upfront.
Send A Reminder Email 2-5 Before Due Date
If you can’t justify upfront payment then you need to implement a systemised collections process. This should start with an automated reminder email 2-5 days before the invoice becomes due.
This can also be an automated email.
Friendly Call 2 Weeks After Due Date
After two weeks it’s time to pick up a phone. Making contact via phone will allow you to have a conversation and learn why payment is late. You can then make arrangements for payment or take credit card over the phone if you have the facilities.
It’s also another way to touch base with the client and strengthen the relationship.
Your tone should be friendly but firm and finish the call with definite date that payment will be made.
30 Days Overdue Letter
This reminder should be sent via email and also as a physical letter that contains
- A copy of the original invoice
- The new due date
- Any supporting documents
- All records of the transaction and
- And mention any late fees or interest they may be charged as part of your Terms of Trade
You now want to be firm and professional in your tone with a specific deadline for when payment is expected or ask the customer to call you to set up a payment plan if they don’t have the funds on hand.
60 Days Overdue Letter
At this stage it is becoming less likely that the customer plans on paying the invoice so you need to explain that you will be passing this overdue account over to a professional debt collector to resolve the issue. Depending on whether you have well written terms of trade, this may results in late fees as well as additional collection costs and bad credit report for the customer.
75-90 Days Past Due
Now is the time you want to pass this account over to a professional collections agency. Having a collections agency that you can outsource overdue accounts to will save you time, money and give you a much better chance of getting paid.
A reputable and experienced collections agency will have an in house solicitor who can draft up a Letter Of Demand on their legal letterhead demanding payment before court action is taken. If the customer still does not pay or respond they have the resources to put your case forward in court.
One thing you may not know is that some collections agencies offer a No Recovery, No Fee Service. This means you only pay them if they collect the outstanding money. This is generally a small percentage of the recovered money or a flat fee depending if you previous arrangement with a collections agency.
