Four tips for collecting overdue debt

In small business it is essential to work with customers and suppliers that will provide prompt payment in order to generate healthy cash flow. However, late payment is an issue that can affect any business regardless of the financial position or payment history of their creditors.

It can be a daunting task determining how to collect payment from overdue debt. In any instance the first and most important consideration should always be to have a system in place that ensures you are alerted to aging receivables before they become a problem.

When alerted of aging receivables it is best to consider your customer's situation before chasing payment. In some cases there may be circumstances that are causing the delay.

Most importantly, you should always address any communication sent forward to the person with the authority to pay!

1. Start with a reminder (5-7 days overdue)

This should be a friendly note that highlights the attention of the payment to the person responsible. In some cases it is possible that the bill has simply been overlooked or just forgotten, and this reminder serves as a note to identify the owed payment.

Example: 'Your payment of $1000 is yet to be received. Please check on it promptly. Thank you.

2. Engage in a conversation (15-21 days overdue)

If payment still hasn't been received this step ensures you understand your customer's situation more clearly and receive a timeframe on when payment can be expected.

Example: 'Your payment of $1000 is overdue. Is there a problem where we may help? As you know, we cannot provide further product until the overdue amount has been submitted. When can we expect your payment?'

3. Issue a demand (45 days overdue)

In the instance where payment still hasn't been received and it seems likely that the customer can't or won't pay because of a serious problem this note serves to strictly label payment expectations.

Example: 'Your account is overdue. You have not responded to our earlier requests. This is our final reminder. If payment is not received in 7 days, we regret that further action will be taken.'

4. A final effort (60 days overdue)

When final communication has been made it is usually acknowledged that you will lose the customer and this is a final attempt to recoup as much money as possible.

Example: 'We have made several requests for payment without a response. We have referred your account to a collection agency.'

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