It’s a problem faced by virtually every business – how to deal with customers who pay their bills late, or not at all. While customers expect prompt and professional service, they don’t always meet the same standard when it comes to paying their bills.
Accounts not paid within terms can severely impact the cash flow of a business. A clearly defined and carefully communicated, yet diplomatic payment policy may help avoid difficult collection situations.
1. Have a Defined Credit Collection Policy:
One of the major causes of an overdue receivable is that the business
has not defined to its customers and staff when accounts are to be paid. If customers are not educated that accounts are to be paid on time – then chances are they’ll pay late or sometimes not at all. Make sure that your customer’s terms of payment are clearly stated in writing to each customer at the time of sale or services rendered.
2. Invoice Promptly and Bill Regularly:
If you don’t have a systematic invoicing and billing system – get one.
Many times the customer hasn’t paid simply because he hasn’t been billed or reminded to pay in a timely manner. This situation regularly occurs in smaller or newer businesses where there isn’t enough staff to invoice and bill on a timely basis.
3. Use “Address Correction Requested”:
One of the most difficult collection problems is tracking down a customer who has “skipped”. All businesses should be aware of a special service offered by the U.S. Post Office. Any statement or correspondence sent out from a practice should have the words “Address Service Requested” printed or stamped on the envelope. When a statement is sent to a customer who has moved without informing you of his/her new address and the words “Address Service Requested” appeared on the envelope, the Post Office will research this information. If the Post Office can locate a change of address on that customer, they will send you form #3547 with the customer’s correct address.
4. Contact Overdue Accounts More Frequently:
No law says you can contact a customer only once a month. The old adage, “A squeaky door gets oiled” has a great deal of merit when it comes to collecting past due accounts. It’s an excellent idea to contact late payers every 10 – 14 days. Doing so will enable you to diplomatically remind the customer of your terms of payment.
5. Develop a Systematic Plan to Follow up Past Due Accounts:
Determine ahead of time what action you will take and at what time frame you will take it. For example, at 15 days past due make a phone call. Your staff can start with a “courtesy” call to make sure that the statement was received. At 30 days past due send another statement with the message, “This is 30 days past due, please remit.” Having this plan and adhering to it makes both you and your customers aware of the fact you expect to be paid.
6. Use Your Aging Sheet – Not Your “Feelings”:
Many businesses (or well-meaning people on their staff) have let an account age beyond the point of ever being collected because he or she “felt” the customer would eventually pay. While there certainly are a few isolated cases of unusual customer situations, the truth is that if you are not being paid, someone else is. So stick to your systematic plan of follow up. You will soon know who intends to really pay and who does not. You can then take appropriate measures once you know where you stand.
7. Make Sure Your Staff is Trained:
Even “experienced” staff members can sometimes become jaded when dealing with customers. This usually occurs when customers have made and broken promises for payment. Make sure the staff is firm yet courteous when dealing with customers. Your collection staff could benefit from customer service training because, in effect, they must “sell” your customers on the idea that you expect to be paid. Make sure that your collection staff is trained to not only bring the account current, but to also maintain good will with your customers.
8. Admit and Correct any Mistakes on Your Part:
Sometimes customers do not pay because they feel you have made a mistake. If you have, quickly admit it and correct it. Your customer realizes that mistakes can happen in business. Unfortunately, many customers believe that “the doctor doesn’t need the money”. Denying an obvious error only fans the fire of resentment your customer may already feel.
9. Follow the Collection Laws in Your State:
In many states, businesses are governed by the same collection laws as are collection agencies. For example: Calling a customer at odd hours or disclosing to a third party that a person owes your business money are a few of the numerous collection practices that can cause serious repercussions. When in doubt, call your state’s department of finance for any clarification on the law.
10. Use a Third Party Sooner:
If you’ve systematically pursued your past due accounts for 60 to 90 days from the due date, (and they still haven’t paid) you’re being delivered a message by your customer. More than likely, you’ve requested payment four to six times in the form of phone calls, statements, and letters. Statistics show that after 90 days, the effect of in-house collection efforts wear off 80%. That means that the time and financial resources budgeted for collection efforts should be focused within the first 90 days where the bulk of your accounts can and should be collected. From that point on, a third party can motivate a customer to pay in ways you cannot, simply because the demand for payment is coming from someone other than you. Avoid paying a percentage to a contingency collection agency, using small claims court or hiring an attorney by utilizing a flat fee collection service such as TSI. It will save your business time and money.
10.5. Remember that Nobody Collects Every Account:
Even by setting up and adhering to a specific collection plan, there are a few accounts that will never be collected. By identifying these accounts early you will save yourself and your business a great deal of time and money. At the same time, your business will benefit from improved cash flow from the vast majority of accounts that do pay.
Developing and implementing a sound collections policy is a vital part of running a successful business. Follow these steps, and watch your business thrive while retaining a good professional relationship with your customers.
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