Accounts Receivable Collections Management- 6 ways to get paid faster

You sent your customer an invoice. The due date has come and gone but you haven’t been paid.What you do next depends on the reason you never received payment. It is important to have a standard process for collections, but different situations call for different tactics. The following are a few catagories of non-paying customers and in each case should  be solved  differently.

1) Will Pay – need a reminder If you sell to small companies (or are one yourself) you know that occasionally bills pile up before you get to them — a gentle reminder is all that it takes to get the ball (and checkbook) rolling. For this reason, unless you have a reason to think otherwise, your first collection contact can be a call (for large balances) or a letter or email (for smaller ones) reminding the customer that their invoice or balance is past due and asking them to contact you if there are any problems or issues. It is important to have a systematic process for identifying customers that need the reminders and to be diligent in reaching out.
2) Will Pay – on our terms, not yours
Many companies, particularly large ones, routinely ignore the credit terms vendors put on their invoices and pay according to their own internal practices and processing cycles. You need to understand your customer’s payment process and set your expectations and follow-ups accordingly. For example, your invoice terms may be Net 30 but your customer tells you that they pay in 60 days. Plan your follow up calls and escalations based on expecting payment in 60 days. Continuing to ignore their policy and asking for payment ahead of their normal schedule could negatively affect your relationship with this customer. If waiting 60 days is a problem for your cash flow then you need to re-evaluate the relationship and consider raising your prices or factoring these invoices to get working capital immediately.
3) Will Pay – when an issue is resolved
There is a whole range of administrative issues that can hold up payment of an invoice. These include paperwork deficiencies (missing PO number or supporting documents), billing errors (incorrect pricing or quantity), shipping problems (shortages or damage), and general dissatisfaction with your product or service – as well as the possibility that they actually never received the invoice. The sooner you identify and rectify the problem the sooner you will get paid. Don’t assume that your customer will take the initiative to bring the problem to your attention. Often they just set the invoice aside and wait for your call. Actual dialogue with a real person who is responsible for paying invoices is essential to identify and resolve issues. One-way communication alone (through statements or letters) is not enough in these cases.
4) Can’t Pay
In these difficult economic times some customers are experiencing genuine cash flow problems. They have no issues with your product or service and understand that they are obligated to pay but tell you that they are unable to do so. If they are still in business – and therefore paying other bills — you need to make the case that they should pay you. Convincing them to give you money instead of someone else is a form of selling so it is important to make frequent contacts using a variety of methods (phone, letter, email) and following a predetermined sequence. As an incentive you could offer to settle for less than full amount or set up a payment plan. Customers in genuine financial distress will appreciate your willingness to work with them and this could pay dividends for both parties in the future when things improve. However, if they are unresponsive you should put them on credit hold and stop selling to them so that they know you are serious and the problem doesn’t get worse.
5) Won’t Pay
These are the tough cases. You know they have the ability to pay but they refuse to pay you. They ignore your repeated calls and letters, give you unfounded objections as reason for non-payment, and break promises — “the check is in the mail.” You need to escalate and get more intensive in your efforts. If your standard process is not effective you need to try a different strategy. Engage people within your company that have relationships, such as the sales rep for the account. Your senior management or business owner can make a call and present the case that you need to be paid from a fellow business owner. When a customer is giving you this run-around it’s time to seek professional help — turn them over to a third party collection agency or attorney. You should do this before the invoice is over 120 days old. Collection efforts are more effective if the debt is not too old. You will pay a fee to the agency if they are successful but 50% of something is better than 100% of nothing.
6) Can’t Find
This is trouble. Returned mail or a disconnected phone means that your customer has gone out of business or moved without informing you. If you can’t contact them you can’t collect from them. Leave skip tracing to the professionals and turn these customers over to a third party agency immediately. If the customer is nearby, drive by their location and see if the business is open or the residence looks lived in. There may be a notice posted with information that might be useful, such as a sign that says a business has moved to a new location.
To summarize:
• Will Pay – need a reminder: Call or send a note to remind them.
• Will Pay – on our terms: Deal with it, but decide if the customer is worth the longer payment cycle.
• Will Pay – when an issue is resolved: Fix it and follow up by asking for immediate payment once the issue is resolved.
• Can’t Pay: If they are truly unable to pay and are willing to negotiate then set up a win-win payment arrangement. If this is just one more stalling tactic treat them as a “won’t pay” customer.
• Won’t Pay: Be firm and consistent in collecting until your efforts hit a dead end, at which time turn the account over to collection.
• Can’t Find: Turn the customer over to professional collection NOW.
One final thought – in collections if you don’t ask for the money you don’t get the money. Understanding your customer’s situation so you can know how to ask them most effectively is essential for getting paid for the work you do. Using specialized accounts receivable collections software like Anytime Collect  can help you categorize customers into different groups making it easier to tailor your communications and your collections processes based on how they pay. The method  is to find and use the right tools.

If you want more insight on on the benefits of credit and collection management software please contact Anytime Collect Israel for a free demo of Anytime Collect.

Anytime Collect  Credit and Collection Management Software was recommended by forbes_logo_main  as one of the  "Five Technologies That Will Increase Your Cash Flow This Year"

   "[Anytime Collect] has been around so long because it’s good.”

 

 

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