Some small business owners avoid hiring a collection agency, ignoring that they have a problem with their accounts receivable. They simply put on blinders and focus on other things. They forego hiring a collection agency by claiming that is it too expensive, takes too much time, or not worth effort. While this is certainly an effective way to avoid hiring a collection agency, it is self-defeating. Delinquent accounts receivable can be ignored, but they do not collect themselves.
So how can small business owners address their delinquent customers, collect money owed to them and still avoid having to hire a collection agency?
Discontinue extending credit to customers.
If you do not extend any sort of credit by having all customers pay up front, then you will never have an issue with customers not paying. How feasible is this for your business? In many cases, it will make you less competitive. You would be avoiding one issue by creating another.
Require a customer contract for all credit customers
Lay out the terms of your credit agreement with customers before providing your product or service. Communicate your expectations for payment in advance. Explain how much, when and how the customer will pay, and explain what will happen if they do not pay as promised.
Your contract does not have to complex. Send a customer a quick email with details of payment and asked them to email back their consent, and you have a simple contract.
A customer contract can help settle disputes before they happen. A contract should be in writing. Oral contracts are legal but open the possibility of different recollections of the terms and conditions of the oral contract.
Make it easy for people to pay you.
People will pay you more regularly if you give them different payment options. You want your bill to be considered as important as any monthly bill. More and more people pay their bills online. If you give customers the option of paying your bill online, it can put your bill on equal footing with other obligations.
Design and implement a process for contacting delinquent customers and work it consistently.
Treat accounts receivable management with the same importance you give to sales, operations or customer service. Review accounts receivable regularly and contact customers as soon as they are late. Use a collection letter and personal phone calls. Be a friendly pest.
Can you avoid ever having to hire a collection agency? Maybe, maybe not. You can however greatly reduce the number of customers you refer for outside collection, if you give your accounts receivables the attention they deserve.