As a business owner, it is frustrating when a client does not pay on time. And it gets worse when he refuses to honor his debts. What more, you now have to deal with the unpleasant task of asking for your money back.
One of the things I have learned working with small business owners is that many companies have difficulty with late-paying and non-paying customers. When this happens, don’t shy away, learn to face this challenge head on. If payment for your product or service is delayed, your cash flow suffers, crippling your business operation.
So what’s the best way to ask clients to pay up? Before You Extend Credit to Any Client…
Check the client’s creditworthiness.
Ask for trade references and contact them for a standard background check.
Look around your industry when drafting your credit terms.
They need to be competitive, reasonable, and generally lower for new customers. Insist on upfront payments or 50% pre-payment if a client is new or if the amount of credit he is asking for is too high.
Create a contract with clear terms and conditions.
The payment terms have to be clearly stipulated in the contract and the customer must sign it.
How to Chase Payment Politely: Here are basic yet effective practices to collect what clients owe from your business.
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Be prompt in sending your invoices.
The earlier your clients receive their invoices, the better. Online invoicing makes it easier and faster to send an invoice to clients. Automation of recurring bills is also simpler with plenty of online tools available.
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Assume the positive.
Clients might have just forgotten the bill or have not received it, so send them a gentle reminder. Give them the benefit of the doubt during the first follow-up call, email, or letter. Be sincerely helpful and positive. It also helps to clarify who is the person responsible for invoice payments.
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Be assertive.
It is easy to lose your temper when a client ignores your payment reminders. But don’t take it personally. Stick to the facts and ask for payment in a clear, concise, and direct manner upon the third collection letter, email, or follow-up call. Stay professional and steer clear of offensive language. You might not want to keep the customer but you still want to get your money back.
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Contact the debtor in multiple channels.
With modern communication channels at our disposal, there are plenty of ways to fool proof your message. Use various means to reach your customers. It’s not enough that you send them an email to follow up on a payment – reach for the phone and confirm if they receive the invoice.
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Handle disputes or complaints promptly.
If a customer claims that your product is faulty or the service is poor, resolve the matter as quickly as possible. Protect yourself by having clients sign a proof of service or product delivery. It is unlikely that you can recover outstanding debts if the product delivered was defective or the service was subpar.
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Assign a competent employee or a reputable debt collector for this specific task.
Bring in external help if necessary. For long overdue credit, sometimes it’s best to delegate the debt-collection task to agents well-versed in retrieving what customers owed a company. When choosing a debt collection agency, be sure they abide by the Fair Debt Collection Practices Act.
While retrieving outstanding debts can be awkward and difficult, your headache will be less if you have clear and organised records of all your business transactions with clients who owed you money.
What debt collection practices do you find helpful when dealing with delinquent clients? Share them in the comments below.