Businesses that offer services or products on credit must stay on top of their invoices to avoid having to start collection procedures. Using outside collection agencies costs even more money, and may require you to write-off the money owed as a bad debt. The problem begins when too many accounts go into arrears, which can seriously affect your company's cash flow. By establishing and following specific procedures, a company can avoid having to turn over its past-due accounts to outside collectors.
Things You'll Need
- Access to account information
- Spreadsheet program
Analyze the number of clients with past-due accounts. Create a spreadsheet to indicate the client's name, the date of the original invoice and how many days the account is past due. Add a space for updates on collection activities.
Develop a plan to avoid past-due accounts. Set-up a plan that details the steps to take on invoice issues. For example, once the invoice is sent, send them an email within one week to ensure they received it. Contact them one week before the invoice is due by email to ensure there are no issues with the product or service. Politely request the date they plan to pay the invoice. Update the spreadsheet.
Be polite in your conversations with clients. You don't have to be their friend, but you should be empathetic of their circumstances. Remind them that they have already received your product or services and they agreed to pay timely. They need to understand that it is not personal, it is about operating a business. Be cordial on the phone, not threatening. The key is to be bold, but not overbearing.
Send a letter after contacting them that outlines the details of the conversation and any agreed-upon terms at roughly the 35-to-40-day mark. At the 45-to-50-day mark make a phone call followed by a second reminder email or letter. An email provides a written record should you need it later. When phrased properly, it should convey a nonthreatening tone. A quick email is a nonpressured way to initiate dialogue. With some email programs, you can set your outgoing correspondence so that you receive notification when they read it.
Bump the collection call up to the manager that handles their account at around 55 or 60 days. An account manager can make a personal face-to-face visit. If you are self-employed, visit the customer yourself. At the same time, escalate the issue to the manager or owner of the company that is behind on its payments.
Send a demand-for-payment letter if the account is still not paid after the 60 to 70 days. Keep records of all these letters. Give them the minimum amount required for them to catch up on their past-due invoices. Let them know, if their account is seriously past due, they are no longer eligible for credit with your company. Help them to understand credit is a privilege, not a right. If they fail to pay their bill, put their account on a cash-only basis.
Make certain that each invoice contains the payment terms and the interest amount charged on past-due accounts. For example you might say, "invoice that are past due are subject to a 1 percent charge each month."
Add an incentive for clients to pay invoices early. Many companies offer a 2 percent discount for invoices paid within 10 days, net due in 30 days. Make clients aware that you must receive the payment before the 10 days are up for them to take the discount. They cannot mail the discounted payment on the 10th day and expect to take the discount.