A company lives or dies by its cash flow. There is a delicate balance between receivables and payables that needs to be maintained. To manage the money going out, you have to manage the money coming in, but sometimes you have a client that falls behind. Here are some tips on handling overdue debt.
There are usually three reasons a customer becomes overdue. Those who want to pay but, for some legitimate financial reason, they can’t, those who juggle or delay payments to manage their cash flow and those who avoid payment on purpose. There’s not much you can do about the last except recognize them quickly and turn over to a collection agency. For the first two, there are steps you can take to help them solve their problem or speed up their payment process.
The first thing to do is make contact with your customer. A personal visit is the most effective option that will put you face-to-face with your customer and can often lead to a resolution. Perhaps they can pay with a credit card, or you can work out a payment plan you both can live with. A phone call is a less effective option as it doesn’t provide a sense of urgency and can make it easier for your customer to be evasive. An email is your worst option. If you have to make contact by correspondence, use the mail.
Send the original bill as soon as possible, then re-bill monthly. Send notices as soon as the due date arrives, even if it’s not in the regular billing cycle. Make sure the due date is clearly stated on all correspondence.
These are reminders only. Don’t harass customers but let them know you’re keeping track. Make no more than one call a day and never threaten them or make personal derogatory statements. You are just reminding them that they need to pay their bill.
When you make calls, keep them short, professional, and direct. Keep personal comments out of the discussion. Stay calm but impart a sense of urgency. You want payment, not ill feelings.
If all this fails and you still haven’t seen a payment, it may be time to turn it over to the professionals. Debt collectors and lawyers who specialize in debt collection should be a last resort. Odds are they will get your money but will take a fee or percentage for their services. Consider how much is owed in relation to how much you have to pay for the recovery. It could cost you more to collect a debt than to write it off.
The main thing to remember is that the majority of the time, a customer who is late isn’t trying to rip you off. They want to pay their debt but have something that prevents them from doing so. A little negotiation can often get you your money and keep a good business relationship. It’s worth making an effort before you drop the hammer.
