Do you want to send fewer customers to collections? Do you want to maximize chances of recovery of the accounts you do send to your collection agency? Here are some ways to do it.
1. Establish a clear and consistent credit policy and stick to it.
• How much credit are you willing to extend to customers?
• How long are you willing to wait for your money?
• What sort of terms will you offer?
• What are your competitors doing?
• What image do you want to portray in the community?
• When are you willing to “fire” a non-paying customer?
• How far are you willing to go to collect money owed to you?
2. Develop a system to monitor your receivables.
Review the aging of your receivables every 30 days. Many small
businesses use Quickbooks, which provides excellent reports that you can use
to track your non-paying customers. The best report in the world is not of any use
though unless you are closely monitoring it and have a plan to take action at each
step along the way.
3. Designate one person as primary contact responsible for
accounts receivables and collection.
The key is focus. You need one person driving the process – someone always
looking, and communicating any issues to key individuals within the organization.
4. Set up in-house pre-collection process and use it consistently.
• When are you going to send a follow up collection letter?
• When do you make follow up phone calls, and who makes them?
• Involve sales, customer service and management in the process
• Personal contact get results
5. Use a contract with every customer. Your contract MUST have:
• Scope of work to be performed
• Length of project
• Cost of work
• Terms for payment
• Consequences for non-payment (interest/collection costs)
6. Use a personal guarantee in your contract with a business.
You sign a personal guarantee when you borrow for your business. Expect the
same guarantee from your customers, especially businesses under three years old.
A personal guarantee will enable you to recover from someone even if they go out
7. Collect complete customer contact information and update
Collect all customer data you can, include all phones, place of business etc. For a
business, make certain you have the correct legal name. For an individual, make
certain you have full name including professional title, middle initials, Jr/Sr. Update
every time you have contact with the customer. Do not simply ask, “is everything
the same?” Ask, “Is you phone number 203-555-xxxx?”
8. Invoice regularly and present invoices that are clear and detailed.
Many collection problems result from poor billing practices. Make sure your invoices
clearly detail each charge as outlined in your contract. State due date for payment.
Send bills monthly.
9. Offer incentives for prompt payment and set up payment plans
Offer a discount for a cash payment, or a payment made before the due date. Or,
set reasonable payment arrangements, preferably with a significant down payment
(e.g. 25% down/9 equals). Be sure to document all arrangements!
10. Make it easy for people to pay you
Obtain credit card from customers for automatic payments. The more you can get
people paying you automatically the better. An e-commerce payment portal might
work for your business – the cost of putting it together will pay off in cash flow to