Here are some key points of focus for taking control of your accounts receivable and collection efforts:
Don't Feel Guilty
Remember that even though you have not collected it yet, it is your money. You have provided goods or a service to this person and they agreed to pay you. As long as you have kept your end of the bargain, you have every right to expect them to keep theirs. It is likely you will hear many sob stories (some of them true and some not); you must be prepared mentally to deal with them. It is not that you should not be sympathetic, but you do not want let the hard times of others put you in the same situation.
Don't Procrastinate
Data indicates the longer you wait to start your collection efforts, the less chance you have of being successful. The recent high rates of unemployment, bankruptcies, foreclosures, etc., make the possibility of collecting old debts less likely than ever so make collecting a priority.
Be Open to Setting Up Payment Arrangements
The goal is to collect all of the money owed to you. Don't refuse to take partial payments and spread a debt out over time if need be. If you make an "all or nothing" proposition, you may end up with nothing rather than at least something.
Use Both Written and Verbal Communication
The first point of contact is generally a "courtesy" or "reminder" notice by mail. This should be sent as soon as possible after a payment is late. A follow up by phone should be planned for 7-14 business days later if payment is still not received. This will allow sufficient time to respond to the original delinquency letter. It is possible it was simply an oversight or a delay in the mail. By calling the customer in a timely manner, they will know you are serious about your collection process. It is very easy to ignore letters and claim they were never received. Those in financial trouble or who are financially irresponsible will avoid paying the bills that have no real consequences for being late and they are not be pressured about. If you are unable to reach them after multiple attempts and your messages are not returned, you can bet on the fact they are avoiding you. More serious collection letters that will grab their attention should be your next move.
It is important to devise a collection system to follow for those involved in the collection process. This will ensure consistency and impartiality. After your system is implemented, stick to it! Before putting in place a new collection system, it is important to look at your billing practices. Ask yourself:
1. Are your bills accurate, detailed, and easy to understand? If not, perhaps you need to address this issue first. If people are confused about your billing, they may just decide to set it aside to follow up with "later". "Later" often isn't until they have received another bill or late notice from you. The more time you need to spend explaining your bills to your customers, the less time you have to devote to running your business.
2. Is your contact information complete and easy to find on the invoice? Your name, mailing address, phone number, contact person, due date, etc. should be clear and conveniently located on your invoices. If it is not, you are doing a disservice to your customers. Again, it becomes all too easy to put aside the bill for "later".
3. Do you include a self addressed envelope for payment? (Or a window envelope if your invoice is designed for one.) Sometimes, just having to find an envelope and address it, will delay payment. The easier you make it for your customers to pay you, the more likely they will do so.
4. Are you billing in a timely manner and allowing sufficient time for payment and mailing? 21-30 days from the invoice date is a common and reasonable expectation. When determining your due dates, consider the following: a few days mailing time to get to the customer, at least 7-10 days for them to pay it (most people pay their bills no more than once a week or are waiting to get paid), a few days to get back to you in the mail, and a due date that falls on a business day that is not a postal hoilday.
5. Do my customers have various payment options? By accepting credit cards, you have greater opportunity to collect from those who want to pay, but just may not have the money available at the moment. By accepting ACH and EFT (electronic checks and automatic drafts), you eliminate the mailing time and chance of payments being "lost" in the mail. You also know very quickly if funds are not available rather than having to wait for checks to be returned to you from your bank. Check with your bank about these options if you are not using them already.
When devising a plan of action for collecting on past due accounts, here are some suggestions:
1. Designate a certain person to be in charge of delinquent accounts. Allow them to be involved in the planning process if possible as they may have some valuable input or ideas on how to be most effective. They will also feel more committed, accountable and more likely to follow through. By brainstorming with those who know and understand your business (and customers), you should be able to come up with a good plan of action.
2. Put your plan in writing. You may need to make some revisions later, but this will give you a starting point so there is no confusion or lack of understanding. This will also allow for consistency in your collection efforts and follow through by everyone involved.
3. Put in place timelines and guidelines for initial contact, first follow up, second follow up, etc. Choosing a certain day of the week for collection efforts often works well as it becomes routine and does not get neglected. Choosing dates of the month near typical paydates is another strategy you may want to try. By contacting customers at a time when it more likely they will have money, you have a better chance of being successful.
4. Set up a system for documenting all contact with each customer regarding past due accounts. Whether it be electronic, or a simple notebook and filing system is irrelevant. It is only important you choose a method that works for your business. Be sure to document the following:
- Date and method of contact (courtesy notice, letter, left message with _____, left voicemail, etc.)
- Basic details of conversation with customer if applicable
- Next follow up date and method of follow up
- Payments received, arrangements made, etc.
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