If you're reading this, you may already be dealing with a client or customer who isn't paying their bills on time. Asking for money is stressful, in general, but especially when customer debts are past due. Even more frustrating is when those past-due bills are beginning to affect whether or not you can pay your own bills. You've negotiated payment terms with your customer and they're not holding up their end of the bargain.

How can you get your customer to pay their bills?

Customer Debts... Paid on Time

Depending on your business and the type of customer debt, there may be options to consider. A hospital may be able to wait out a longer period of time - for instance, waiting on health insurance payments - before an unpaid bill begins to affect their daily operations. If you're a independent landlord, however, late rent payments could make a huge difference. 

Here are general tips to encourage customers to pay on time:

• Request deposit or payment upfront - This collection tactic can be used to show good faith when working on large, one-time or long-term projects or if you are an independent contractor. In some cases, first half of the payment is due to begin a project and the last half is due at completion. If the customer is aware of when and how much they owe, they may be more likely to budget for it.
• Offer incentives - One way to obtain payment, especially in terms of offering financing, is to give a discount if paying off the debt on time or earlier. 
• Clarify penalties - Customers should be very aware of when and how much they will be penalized for late payments. If you have a pre-determined collections policy, state it clearly in your agreement so that customers will know their past-due account will eventually be sent to collections.
• Negotiate payment terms up front - All business agreements should include what payments are expected and when they are due. In some cases, this can be accomplished through a written contract, proposal or payment schedule. For landlords, these terms can be stated in a lease agreement. 
• Send invoices regularly - If your customers are aware they will be billed on the 30th of every month, and payment is due 10 days later, they will be more prepared to include the payment in their monthly budget. Automating your invoicing, through accounting software, may be helpful for ensuring invoices are sent to customers at regular intervals.
• Send payment reminders - Your bill may have been overlooked. Sending a friendly payment reminder may prompt your customer to pay.
• Automate payments - Making payment options easier is yet another way to make sure customers pay bills on time. Automating, in terms of allowing the customer to use ACH or a saved credit card, will mean your bill gets paid and the customer doesn't actually have to do anything past setup of the payments. 

Negotiate or Send to Collections?

The decision to negotiate with your customer or send the account to collections will depend on your business. Occasionally, especially when a relationship is at stake, it may be wise to negotiate first. The optimal time to negotiate could be tricky, however, because you don't want to feel as if your customer will take advantage of more relaxed terms with regards to payments. Here are some things to consider:

• Can you afford to lose this customer?  If not, maybe it's time to re-negotiate your original payment terms. If they feel that they can pay in net 45 days, as opposed to net 30 days, maybe you can work with that too.
• Can you work with payment arrangements or financing? Instead of not getting paid at all, maybe making a payment plan would work better for your customer. It is still advisable to agree to terms - when and how much is due - so that both parties are clear. Get the agreement in writing and follow the tips stated above to prompt your customers to pay on time.
• Are you communicating regularly? If you have established a trusting and communicative relationship with your customer, you may find that even when they are struggling, they will pay you on time or at least give you fair warning that payment will be late. 
• Are you protecting your best interests? Negotiating with your customer can be helpful in recovering past-due payments but you must also remember to protect your business. If you cannot afford to negotiate, it may be time to send the account to collections so you can focus on those customers who are making payments on time.

Sending Accounts to Collections

In terms of accounting, a recommended best practice is to set an internal process control, or collections policy, that standardizes when an account should go to collections. If there is a firm date for writing the account off (60 days, 90 days, 120 days), you or your accounting department may be more proactive in asking for payment, and ultimately more efficient in sending accounts to collections on a consistent and regular basis. Otherwise, if you choose to handles late payments on a "case by case" basis, it's likely the account will never get turned over to collections and those debts won't be recovered.

• Make sure you have an audit trail of all communications, agreements and contact information on the account.
• If you've attempted to negotiate with or collect from the customer and if you've received any response to those attempts, send all of that correspondence to the collections agency.
• Remember that the sooner the account is sent to collections, the greater the chance of recovery.

Let us know if we can answer any questions to help negotiate recovery of past due debts.