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6 Steps To Collecting Your Receivables More Efficiently

collecting-debts

There are 101 reasons (and excuses) why people and businesses pay late or do not pay. And for most of the time, there will be no malicious intention on their part.

In many cases, they are just stretching out their cash flow just like you. They are playing just within the boundaries of the payment terms which was previously agreed.

Maybe you have foolishly agreed to a 180-day credit term, maybe you delivered your good later than agreed, maybe your physical products arrived at the unloading bay 20% damaged, maybe your meticulous stinginess caused you to unknowingly shortchange your customer’s ordered quantity…

As you can see, there are many legitimate reasons for clients to make it difficult for your collections department which you cannot fault.

But in some cases, you just have the bad luck of dealing with clients who have a bad habit of “forgetfulness”.

If you have been in business for a while, you will know that many people and businesses simply won’t pay until you pester them continuously for a week or 2. It is as if a fear of paying for something they bought is preventing them from taking action.

Ridiculous.

Without going against the law, here are the steps you can take to get the money you are justly due.

1) Give them a call!

For those who really had no intention of delaying payments, a simple call will usually be good enough to remind them of their mistake.

You will be surprised at how much receivables you can quickly collect with 1 friendly phone call. You’d be even more surprise to learn that most business owners do not have a proper protocol to make reminder calls to their clients for payments.

Sometimes it could be a simple mistake in the invoice that is causing bottlenecks in their processing. And you can rectify it immediately.

If however, your friendly reminder phone call does not get you paid, move on to step 2.

2) Send an official past-due notice

As soon as the due date has gone, you should send a past-due notice immediately. Don’t wait.

There’s nothing wrong with being anxious to get paid. In fact, the more inaction you take, the more respect you lose on the other side. The debtor might even feel that the money does not mean that much to you to receive little attention on your side. This can be taken as an invitation to delay even more.

It’s your money. You have the right to demand it. And there is nothing to be embarrassed about for a business to ask for payment.

The good news is that there are many account management software these days that can manage the whole process for you. You just need to set them up the right way.

And at this point, don’t just send an email. Send letters, faxes, registered mail, etc. Make sure the other party knows you mean business.

3) Put a halt to delivery

If you are in a position where you are able to stop delivery of products and services, it time to pull the plug.

There’s no better way to get their attention.

However, just in case there were really justifiable reasons that your notices and reminders did not reach the right people, you should send a final warning of stoppage of deliveries. Give them notice when when it will be happening.

Check your trading terms to make sure you don’t breach any clauses.

If the situation had reached this stage, you will definitely get a response from the debtor. The response will help you determine with more certainty to whether to play the good or bad cop.

Ideally, your embargo will cause the client so much headaches that it will illicit the response you had hoped for.

If not, you can now be sure that the customer has no intention to pay.

Time to let the dogs out.

4) Enlist the service of debt collectors

You can see now that you are not alone in managing this problem. Non-payment issues are so widespread that a whole industry was born to fulfill the demand for these services.

Debt collection agencies are known in some folklore to create miracles. They are famous for pulling rabbits out of hats even when all hope is presumed to be lost. Some even vow to have seen them glorified like Greek gods in ancient wall carvings.

For the layman, they basically do everything in their power to help you get your money back… that is within the law.

You will of course, have to pay them for the services. Fees and charges typically range from 10% to 50% of amount successfully collected.

This can seem like a huge cut to giveaway. But in the context of things, it’s better to get something back than nothing.

5) Mediation

Sometimes, specific problems preventing payment are small and easy to rectify. But micro issues and personal agenda make communication difficult.

At times like these, mediation might be able to swiftly get all parties to come to an understanding.

Mediation services allow a neutral third party to help everyone come to a reasonable solution.

This is the final phase before taking the case to court.

6) Go to court

If you have ended up here, you shouldn’t start patting yourself on the back. Getting here is an indication that something went wrong in the way you conduct business. You should actually start digging into your operations and conceptualize systems to put in place so that such undesirable cases do not repeat itself in future.

This should be the very last resort after everything had failed.

It takes time and money to go this route. And that is without counting the mental stress of getting involved in one.

Do check your local laws to determine how to proceed. There is no 1 rule that governs the whole world.

If you are a pragmatic business person, you might find that the gains will not outweigh the losses after a simple calculation.

But if the amount is significant and you have a huge motivation to uphold your principles on justice, by all means go ahead and take them to court. Do make your decision a business-oriented one.

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