How to Prevent Overdue Accounts on a Business

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Make dunning calls the last resort when trying to collect from clients.
Make dunning calls the last resort when trying to collect from clients. (Image: Visivasnc/iStock/Getty Images)

Businesses offer credit for services or goods – an incentive that allows clients to pay for their purchased items at a later date. But even clients with great intentions can get lax or miss paying an invoice, creating the unpleasant task of collection. An overdue creditor drastically effects business cash flow, making it hard for you to pay your bills. Being proactive on customer debts before they occur can help to ensure you get paid on time. But if that doesn't work, there are steps that you can take to foster good business practices and great relationships with those that owe you money.

Avoid taking on new customers with bad credit. Pull a copy of the potential customer's credit report or ask for credit references when they apply for credit. Review the credit references for the potential customer, and call them to verify they are a customer in good standing. You can also request a copy of the potential customer's financial statements to get an idea of their solvency.

Obtain a signed contract from clients that clearly spells out expectations for delivery and payment – including any fees or legal ramifications for late payments. Have the contract signed by both parties and dated. Have clients initial the payment terms separately so that you know they understand this obligation under their contract.

Build positive relationships with your clients that make it difficult for them to ignore your requests for timely payment. Develop friendships with the company's leadership. Hold events to reward your customers for being good clients.

Offer discounts for early payments. For example, many companies offer early payment terms such as 2 percent off for payment of the bill within 10 days of the invoice date. Likewise, impose penalties or interest for late payments, which is clearly spelled out in the contract.

Send an email to confirm the customer received your invoice a few days after it is sent. If you send invoices through the mail, you can verify receipt of the invoice within at least a week of mailing. If you send them email invoices, set up your email to have a "Read" receipt sent to you when they read it.

Contact your client by email a few days before the invoice is due to gently remind them of payment. If you have not received payment by the due date, send another email notice at least five days after the due date to follow up. Let them know the invoice is past due but include a comment to ignore the request if payment has already been made.

Call the customer seven to eight days after the payment is late to check on its status. Inquire as to when the payment will be made, or request drop-off delivery to ensure it is received.

Let the client's sales representative know that the customer has not made payment if it is more than a week late. The manager overseeing the account may have some sway with the client and can request payment.

Refuse to do business with the customer until the late account is brought up to date. Do not deliver any additional merchandise or accept any further excuses as to why payment has not been received. Simply stop doing business with the client until the situation is rectified.

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