Collecting payments is one of the most important steps in running a successful business. Failing to collect promptly is a red flag for failure. We show you how to collect overdue invoices.
Small businesses typically run tight during their first few years. This means very tight margins and limited working capital. As such, when clients pay invoices late, or not at all, the ripple effect can be catastrophic.
How to collect overdue invoices is a critical step in maintaining efficient cash flow. Therefore, it’s important that you know how to handle late-paying clients before turning to debt collection.
What should a business do to get paid while maintaining a positive working relationship?
First off, it depends on whether the customer lacks the incentive to pay on time, or is truly having difficulty doing so. It’s one thing to submit an invoice that says payment is due within 30 days. It’s another to spell out—and enforce—the consequence of not paying within 30 days. Ensure your payment policy:
- Specifies an interest charge for overdue balances.
- Charges a fair returned check fee.
- Includes purchase order text that makes the buyer responsible for collection charges.
- Offers a discount for on-time payment of bills.
- Set up recurring billing.
Tips for Collecting from a Good Customer in Financial Difficulty
When good customers aren’t paying their bills, it’s important to find out why. You don’t start by threatening legal action or being threatening. It means taking some of these rational steps.
- Monitor your customers’ payment habits. You should be able to quickly identify those who need quick reminders when their bills are overdue. If your terms are 30-day, and your good customer always pays in 60-days, then you probably shouldn’t use collection procedures until they go past their normal cycle.
- Adjust the billing cycle to increase on-time payments. Sometimes it’s just a matter of sending the bill mid-month instead of at the end of the month. You can limit the size of a customer’s order.
- Phone the slow paying customer. Making direct contact with the person who handles accounts payable is the most effective way to collect on overdue accounts. Sending bill after bill quickly becomes a waste of time and energy.
- Work out a payment schedule. If the customer is having problems paying you, chances are the customer is having trouble paying others. A payment schedule at least puts you ahead of those who just wait it out. It also provides customers with some sense of relief that the matter can be resolved and you are someone they can work with. When these customers return to better financial footing, you’ll have earned some loyalty that might pay off.
- Follow up quickly when payment is later than expected. When a payment is past due, send a reminder or make a phone call. Sometimes the check really does get lost in the mail. A timely follow-up can fix problems like a lost invoice or check.
- Consider settling the bill to save the account.
- If all else fails, consider using a collection firm. Give the customer one last chance to make full (and immediate) restitution. Otherwise, consider turning the account over to a collection agency , so someone else can be the heavy. They will only charge you when they collect against commission.
TCM Egypt helps clients with debt collection in Egypt and worldwide, debt recovery in Egypt and worldwide, accounts receivable management, and business investigation in Egypt and worldwide.