Three Ways to Ensure a Smoother Collection Process
by Erica Nelson on January 20, 2015
As a creditor or debt collector, the importance of prompt payments from your debtors cannot be understated. Though there are of course many debtors out there who pay what they owe in a prompt and polite manner, collectors frequently encounter more challenging clients. Late payments and bad debt are a very real problem for creditors across the globe and can result in cashflow problems, strained business relationships and growth stagnation.
To avoid the headaches of collecting overdue payments, or to streamline your collection process, consider the following three best practices tips when constructing your payment collection strategy.
Make an informed decision about your potential clients.
The most important piece of advice is also the most obvious: The simplest way to avoid overdue payments is to be familiar with your clients’ past credit score history. Beyond running a standard credit check, you can ask for and contact the prospective client’s business and credit references or request their financial statements in order to get an idea of their payment habits and general solvency. With these insights, you’ll have all the information you need to negotiate collection to agreed terms and prepare for any potential future issues.
In certain lines of work, particularly within the financial services field, one may find themselves unable to avoid dealing with frequently delinquent clients. In these cases, you may benefit from grouping your clients according to their credit risk. Through diligent research and skillful organization, you will be able to easily identify clients with whom you are likely to encounter non-payment and bad debt. Knowing where the credit risk lies in your portfolio and delegating resources accordingly can make your collection process more effective and efficient.
Clarify your terms and incentivize prompt payment.
Once you’ve researched the client and made the decision to do business with them, you should decide on clear payment terms and conditions and be prepared to stick to them. Spell out any fees or legal ramifications for late payments and ensure that the contract is signed and dated by both parties. You may wish to have the client initial the payment terms separately so that you’ll have assurance they understand their contractual obligations. After you send your invoice, contact your client via telephone or email to confirm receipt and sniff out any problems early on. It may seem like tedious overkill, but thoroughness and communication are crucial to protecting your investment and your business.
When forming your contract with the client, you can build incentives within the agreement to further motivate prompt and proper payment. One fairly standard practice is to have an early payment option available to clients, offering a two to three percent discount in exchange for payment within ten days of the invoice date. Conversely, be clear that you will impose interest and penalties beginning from the first day the bill becomes late and ensure the client is aware they’ll be responsible for all fees associated with bill collection. Finally, offer as many payment options as possible. The easier it is for your client to pay, the more likely they’ll do so promptly.
Be firm but cordial.
Even the best preventative efforts may not fully shield you from the risk of late payments and uncooperative debtors. Once a due date passes, you should contact the client as soon as you can, ideally within five days. Initially, a simple, courteously worded reminder note or e-mail may be just as effective as a telephone call. If a few more days go by without payment, phone the overdue account holder to confirm their receipt of the courtesy note and offer to make payment arrangements. After a certain period of time, you can send a more authoritative letter of demand with a stern but professional warning that further action may be taken if the delinquency is not remedied.
While the specific procedures will vary depending on the nature of your business, in all instances you should maintain a courteous, professional tone throughout the collection process. Confrontational or accusatory language should be avoided, while at the same time maintaining your position and being firm in your demands. Whether collecting overdue debts or disputing the details of an invoice, keeping cool and cordial can diffuse tense situations and help maintain your crucial client relationships
An effective collection process is vital to the health of your business, and a partner such as D&S Global solutions can offer the assistance and expertise necessary to guide you through every step of the process. Our customizable service solutions and extensive global network of credit professionals can provide you all the tools needed to protect the investment you’ve made in your clients and realize the full potential of your business.