Strategies for Managing Overdue Accounts and Late Paying Customers
Business owners may prefer not to think about the possibility but overdue accounts and late paying clients can present an inconvenience as well as serious cashflow problems for your business. While many companies may need to use a debt collection agency at some stage, there are some early strategies you can use to manage your overdue accounts and discourage late payment.
- Have a Clear Policy on Payment Terms
- Set Up a Firm Credit Policy
- Follow Up Regularly
- Send Invoices Quickly
- Be Cautious About Large Orders
- Monitor Your Accounts for Customer History
- Know When to Escalate MattersGo over all the relevant details in relation to the customer’s account and use your judgment to know when it is appropriate to take the following steps:
- Sending letters warning of legal action
- Calling with an ultimatum for legal action
- Engage debt recovery services
Ensure that your payment terms are clearly set out on all invoices. If you provide services, make sure a significant deposit is secured before beginning any work. If you provide goods, avoid shipping or providing the goods without payment as much as is acceptable for your industry.
If you need to provide services or goods on credit – and most businesses will need to provide credit for at least some of their goods and services — you should set up a clear credit policy. A good credit policy will include specific steps for collecting overdue payments. In setting up a credit policy, you should be aiming to obtain payment without alienating or losing customers.
Provide the goods and services with an invoice that set out the terms and conditions for payment, and penalties for late payment. Be comprehensive; also include procedures that will be followed in the case of overdue payments. Bring your customer’s attention to these credit terms. Where appropriate, use credit ratings to assess customers before you grant credit. You should then monitor credit accounts on a regular basis.
As part of your credit policy, you should set down time frames for following up. Where credit accounts have not been paid by the due date or invoices are overdue, follow up immediately. Schedule periodic reminders at 15, 30, 45, and 60 days with your customer relationship management or operations software Be courteous but diplomatic when following up and speak directly to the management or owners.
Call them after sending out the reminder notice and always try to have them agree to payment. If necessary, insist on visiting their premises for a chat or offer to pick up payment yourself.
If you send invoices out on time, it creates a perception of urgency to the customers. If your invoices are late, it tells the customer that you are lax about timelines and will tolerate late payments.
If a new customer is making large orders, be doubly aware and do ensure that they are able to make payment by conducting a credit check.
Stay alert to problem customers by monitoring customer history. You may need to draw a line when it comes to consistently late paying customers who continue to make orders while paying very late. Cut off supplies or refuse service, or make an exception and refuse credit by demanding upfront payment for this group of customers.
