Collecting What You Are Owed

By: Financial Hotline
Issue: Spring 2018 (Vol. 36, No. 1)

For many business owners, collecting on your accounts receivables can be challenging especially as more people switch from established collection procedures to online payment methods.

The good news is that you can take positive action to improve collection rates, shorten the aging days of your accounts receivable, help your business improve its cash flow and tighten up its credit and collections policies. While some of the tips discussed here may not be suitable for every business most can serve as general guidelines to give your company more financial stability.

Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not extend credit to customers who are not credit-worthy, or who have become delinquent. You should also clearly delineate what leeway salespeople have to vary from these guidelines in attempting to attract customers.

Establish a system for checking out a potential customer’s credit and their credit limit before an order is shipped or the service is performed. Further, there should be clear communication between the accounting department and the sales department as to which customers have outstanding invoices.

Clearly Explain Your Payment Policy. Invoices and order forms should contain clear written information about the payment due date and what will happen if they exceed those limits. Make sure invoices (both paper and electronic) include a telephone number and website address so customers can contact you with billing questions. If you send an invoice via the US mail, it helps to include a pre-addressed envelope.

Timing. The faster invoices are sent, the faster you receive payment. For most businesses, it’s best to send an invoice when you complete the service or with a shipment, rather than in a separate mailing or online invoice days or weeks later.

Follow Through on Your Stated Terms. If your policy stipulates that late payers will go into collection after 60 days, then you must stick to that policy. A member of your staff (but not a salesperson) should call or email a reminder invoice or notice of late payment to all late payers and politely request payment. Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection if that is your stated policy.

Train Staff Appropriately. The person you designate to make calls to delinquent customers must understand the seriousness of and the professionalism required for the task. When calling a delinquent payer, the caller should:

  • Become familiar with the account’s history and any past and present invoices.

  • Call the customer and ask to speak with whoever has the authority to make the payment.

  • Demand payment in plain, non-apologetic terms.

  • If the customer offers payment, ask for specific dates and terms. If no payment is offered, tell the customer what the consequences will be.

  • Take notes on the conversation.

  • Make a follow-up call if no payment is received and refer to the notes taken as to any promised payments.

Switch to an Online Payment System. Studies show that customers and clients prefer to pay with debit and/or credit cards or EFTs vs. checks and to have multiple payment options (including traditional paper invoicing) available to them. Furthermore, when you use the latest online payment technology clients are more likely to feel that you run a more efficient streamlined operation and are “up-to-date.”