If your customers owe you money, the faster you’re able to obtain it using effective collection tactics, the better. Ideally, you want to reduce the chance of bad debts and pressure on your business’s cash flow.
It can be easy to neglect managing your debtors when you’re busy growing your business, but smart credit control is important.
So it’s important to have the skills to handle the people who owe you money well, especially if you want to avoid having to take them to court.
As with most things, prevention’s better than a cure. If you have good processes in place for collecting debt, the less likely it is that you’ll have to chase debtors. And if you do, having the proper processes in place to follow up on late payers makes it much easier.
Having stricter control over new debtors is the best way to limit your exposure to future bad debts. So make sure that you:
It’s important to put together your payment terms to encourage prompt payment. You could, for example, offer a 2% discount for customers who pay within 21 days.
Ensure that your terms of trade state exactly when you’ll start charging interest on any overdue amounts, along with the rate you’ll be charging. Don’t yield to customers even if payment is only a day late.
Whether you decide to make any exceptions for those customers that usually pay promptly is up to you – but be clear that it’s a once only exception because you value that customer’s business relationship.
You’ll come across as an astute businessperson who takes payment collections seriously if you have a systematic approach showing your customers that invoices are a top priority. By being organized and able to quickly reference a customer’s account when they make contact, you’ll be more likely to get paid faster.
Some ways you can project a higher level of organization include:
Identify and deal with problem payers as soon as you can. The sooner you start chasing the debt, the sooner you’ll get paid.
If you’ve got good accounting software, it’ll notify you of any unpaid credit sales as they become overdue. Many accounting programs will automatically flag overdue bills, as well as generate reports of unpaid bills showing how long they’ve been late.
What you’re looking to do is speed up the collection of late payers. You can do this by:
Small business owners often find chasing money owed to them like pulling teeth. It’s not pleasant and it’s not the reason you went into business. But when people owe you money, and it’s the lifeblood of your business, then you cannot afford to not take action. Customers will respect you for being firm but fair.