An inevitable result of tightening credit conditions is that customers take longer to pay their bills. When a business has trouble meeting obligations, it is the squeaky door that gets the oil.
Make sure your door is squeaking loudly, but also make sure your approach is totally professional and not emotional.
If customers know you are serious and you take the appropriate steps all the way through the process in a disciplined manner, it is less likely to end in an unpleasant way. Indeed, accounts receivable should be the prime source of funding for a business; otherwise, you are funding your customers' businesses.
Businesses often find it difficult to chase customers for payment for fear of upsetting them. If you are not being paid promptly the customer is probably not worth having anyway, so why worry about offending them?
If the debtors' ledger shows that the 90 and 60 day columns are increasing all the time, management needs to take steps to correct the position and prevent bad debts.
The following 12 steps should be taken in order to prevent debtors skyrocketing:
- Have a system and process in place - and stick to it.
- Follow-up on all slow payers.
- It is important to get difficult debtors to admit they have problems in paying and to then obtain a firm commitment for an amount to be paid against the account.
- Go and see them - and don't leave the premises without having their commitment.
- The same applies if following-up by telephone - Don't finish the call without obtaining a firm commitment to make a payment. And follow-up immediately if it is not paid.
- Encourage payments to be made automatically to your bank account.
- Automatically send 30, 60, and 90 day reminder letters. Insist on your trading terms being met.
- Send professional demand letters and threaten legal action.
- Have persons responsible for the transaction deal direct with decision-makers. Keep in regular contact. Monitor collections.
- Whenever possible, insist that the account be paid when the work is delivered and / or obtain written terms of the trade.
- Discuss amounts up-front so customers know you are serious about your collection program.
- If necessary, use a debt collector and be prepared to go to court.