Chasing payment

In an ideal world all customers would pay in full and on time. Unfortunately this is often not the case and a customer's delayed payment leaves your firm out of pocket.

To avoid the cash flow issues associated with delinquent payers every business should have a clear debt collection  policy which should be applied when chasing overdue debts.

An unpaid account is money that is rightly yours so asking for it shouldn't be an issue yet it is a task that many SMEs dread. Importantly however, it isn't a task you should delay because the longer the debt is outstanding the more it will impact your cash flow and the harder it will be to collect.Making accounts receivable a priority for your business will free up funds to pay your own bills or invest in your business.

Taking a structured approach to the task of chasing overdue accounts is often the best way for SMEs to effectively manage the process. The process should commence before an account becomes overdue - in fact, it should begin when you sign a new customer. At this point you should make your customer aware of your credit policy and payment terms and have them sign a credit agreement indicating that they have consented to this arrangement.

Issue invoices promptly

You cannot expect your customers to pay on time if you are not forthcoming in providing the invoice in a timely manner. Whatever your invoicing cycle, whether it be immediately after goods are delivered or if it is an end of month cycle, make sure you get those invoices out the door immediately.

Also, make your invoices clear and ensure they include all the relevant details such as account and purchase order numbers, the right contact at the organisation, the correct address and the appropriate billing amount. It sounds simple but a significant number of payments are delayed because the issuing firm failed to include a PO number or the invoice is sent to the wrong address.

Also include your payment options - making it easy for the customer to pay is the best way to speed up the process and positively influence your cash flow

Before the bill is due

If the invoice is for a large amount, consider calling the customer a couple of days before the due date to confirm the invoice has been received. Also, you may wish to advise your customers  that you prefer payment via electronic transfer or direct debit. This will reduce the clearance time for payments at the bank and avoid you having to wait for a cheque in the mail.

Immediately after the due date

Follow up unpaid debts swiftly after the due date passes as the longer you wait the more difficult debt is to collect.

When payment is only a few days overdue it's best to assume the invoice has simply been overlooked. Send a friendly, well-worded reminder letter to your customer requesting payment.

The reminder should be simple - it should advise that payment has not yet been received and it should include all the relevant details of the invoice so the customer can easily identify and locate the relevant account.

Now that you have begun the follow up process for the account it is important that you keep a record of every communication that follows - note the date and the method of communication. Keep records of all letters that have been sent and also record the outcomes of any conversations. This information may be useful if you are forced to take
further action down the track.

15 to 21 days overdue

If your reminder letter fails to result in payment of the outstanding invoice it's time to make a phone call.

By calling the debtor a discussion about the account cannot be avoided. If the customer indicates that the invoice has not been received, email it to them while you are on the phone and confirm receipt of the account.

During this discussion be polite but firm in stating what you need from the debtor. Put a deadline on payment and note your preferred method of receiving the funds. If the debtor raises an issue with the account you should aim to resolve it immediately otherwise you will simply delay payment even further.

Depending on the specific details of the situation your resolution may include a payment plan, an agreement on a new due date, or putting the customer's account on hold until money is received. Sometimes it is best to be flexible
however, you need to ensure customers aren't simply taking advantage.

More than 21 days overdue

Once a debt reaches the 21 days past due point it is time to send your customer a final reminder letter. This collection letter should be direct and firm but not impolite and it should inform the customer that further action will be taken if  payment is not forthcoming. Ideally, you would like to continue dealing with the customer and if you are rude or aggressive, this could prove difficult.

However, it is important not to make empty threats so be prepared to follow through on your warning.

Word your letter similar to: 'Final reminder: Your account is overdue. If payment is not received in seven days, we regret that further action will be taken.'

Further action

If your final reminder does not result in payment of your account it may be time to call in the experts and have a trained collections agency chase the account on your behalf. You may also wish to seek advice on taking legal action against
the client however, it's important to remember that legal action can be costly and there is no guarantee of success.
 

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