Thinking that debts can wait is foolish — any smart business person can tell you that the aging debts can affect your business in more ways than one. Here’s why waiting to follow up on payments can backfire and ultimately cost you.
Invoices and Deadlines
Getting paid on time affects your cash flow positively. You don’t have to worry about paying things out of pocket, such as bills, rent, or your employees’ salaries. If you have a hard rule on the exchange of goods or services and their payment, you’re in a very lucky situation. However, many businesses offer a 90-day rule to help make it flexible for their clients to pay.
This kind of a payment scheme can cause headaches and maybe even encourage your customers to pay as late as they can.
Avoid Late Payments
There are simple steps you can take to ensure that your clients pay on time. Here at JMA Credit, we’ve put together some helpful tips that can make things easier for you when you manage your business.
Send out invoices early
There is no reason for you to prolong giving out invoices, unless you don’t have an effective process put in place.
Remember that as soon as clients receive their invoices, the clock starts ticking. If you offer a net -30 payment schedule, the day they receive their invoices counts as day 1. Even when goods and services are delivered or provided, as long as the client holds no invoice, your finances are in a bind.
Apply late fees
Informing clients about payment fees will encourage them to pay on time. No one wants to pay extra just because they missed the deadline.
Offer a promo when they pay early
Another way to help avoid late payment from clients is to offer a promo when they pay early. Common promos include free shipping and handling fees on their current order or an early settlement discount for this order, or a discount on their next one. When clients see the benefits of paying early, they’ll be more likely to take advantage of it.
Update your Terms and Conditions
Take a good look at your current terms and conditions and study which section can be improved or changed. There might be a clause or condition that encourages customers to pay late.
If you don’t have a terms and conditions document for your business, have one as soon as possible. Consult with a professional as this is a legally binding document. Learn more about the benefits of terms and conditions documents here.
Age of Account Matters
Let’s say you have a few unpaid invoices. They’re piling up and running after them can be time-consuming and stressful.
Waiting or putting it off is one of the worst things you can do to an account with debt. Statistically speaking, the likelihood of a client paying their debt is still quite high when you try to collect within 60 days of their due date: there is still a 90% chance of getting your money. Wait for 90 days and it drops to 50%. If you prolong it even further, there is only a 20% chance. Time is of the essence when it comes to unpaid debts.
Older Debts are Harder to collect — here’s why
You’re in for a challenge if you think that recovering older accounts will be a walk in the park — there are reasons why you shouldn’t keep this waiting:
- Clients might have forgotten the services or goods acquired from you
- Clients will question the legitimacy of the unpaid invoice
- They might have filed for bankruptcy
- They might have changed address and moved away
As you can see, these excuses may hinder you from successfully collecting debt. In some instances you may never be able to recover them at all, wasting your time and effort in the process. Even with the help of professional debt collectors, some debts may end up nothing more than what it is.
Debt Recovery Tips
Make sure your T&C are in order and agreed upon
More than your terms and conditions being put in place, ensure that you and the client have both agreed on it before proceeding with the transaction. Everything in this document highlights and explains the expectations and responsibilities of both parties — and should make things clear from the very beginning. Should the need arise, a professional debt collector may step in on your behalf.
Communicate regularly with the client
As soon as the deadline of payment has passed, make it a point to follow up with the client at least once a week. This may be in the form of emails or phone calls. Regular follow ups will make it economical on your end; as for the client, they’d want to clear that debt up as soon as possible.
Whatever reason or excuse they throw at you, be prepared. For example, they might claim to have never received an invoice — email it immediately. Confirm if they have received it over the phone.
Ask them when they can settle. Letting the client decide when they can settle their payment is one way to make sure they pay their unpaid invoices. Confirm their commitment before hanging up — and hope that they follow through.
Be cool about it
It is understandable to feel annoyed and disappointed when unpaid invoices are piling up — more so when the client isn’t cooperating with you. As much as you want to pull your hair out of frustration, don’t. Keep your cool while you negotiate with the debtor.
If the client claims that they are experiencing financial hardship at the moment, offer them convenient payment options. Remember that the point of debt collection isn’t so much as being paid in full right away — it’s more about a client slowly paying off their debt.
Put it in writing
When calls or emails are not enough, a physical letter might do the trick. Sending them snail mail and reminding them of their late payment can sometimes motivate debtors to pay up.
Enlist the help of a debt collection service
Professional debt collectors are at your disposal when things aren’t panning out the way you want them to. JMA Credit has been in the business for decades and our collective experiences in debt collection has helped our customers recover debt in a peaceful and speedy manner.