Our client, a small subcontractor in Connecticut, was concerned about the ever increasing number of customers who were going 90 days or more past due. While they had taken the time to research and hire a collection agency that they really liked, they really wanted to keep the number of files referred for collection as low as possible.
They were busy and growing, but were not paid on a very large job and decided enough was enough.
We met with this customer and reviewed their billing, credit and collections practices. We noticed the following:
- In the busy season, they were not sending invoices monthly. Some customers were not receiving bills for 90 days.
- Past due invoices were sent with no letter or notice attached to them.
- No one was calling late-paying customers
- They had no contract with most customers, and gathered very little information.
The first thing we did for this customer was to ask them to commit to sending bills a monthly basis. Regular, consistent and clear billing is key to getting paid on time.
Then we designed a process to document payment plans. We created a template collection letter for them, and we put in place a review and follow up process for their accounts receivables. At 30 days, they sent a gentle reminder. At 60 days, they sent a collection letter and the assistant placed a friendly reminder call. (We scripted the call for her, and after a few calls, she became very comfortable with the process). At 90 days, a final notice was sent, and the owner of the company made phone calls on some of the larger receivables. Any customers who did not respond during this process, (and many did!) were sent for outside collection.
Lastly, we helped design a new customer intake form so they would gather customer information. We strongly recommended that they have their attorney draw up a customer contract immediately, and thankfully, they listened.
One year later, this small business has reduced the number of files referred for collection by 25%. They have a much better handle on their outstanding receivables, and since they are using a customer contract, are able to get back some of the costs of having to refer files for collection.
What steps have you taken to reduce bad debt in your business? We would love to hear!
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