In order to continue growing your business, whether that's investing, moving to a larger office or hiring employees, your accounts receivables must function effectively. Your A/R team is most effective when invoicing regularly, collecting payments on time and recovering payments past-due. Before sending a past-due account to a collections agency, accounts receivable departments can learn best practices for recovering lost payments. Negotiating with your customers is an art but knowing when to negotiate is a science.
When recovering past-due amounts, ask for the full amount before negotiating.
Ask for What You Want
In business and in life, one of the toughest things to do, especially when it comes to money, is to ask for what you want. If you've provided the service or goods, you have a right to ask for what's owed to you. You and your client agreed upon a price, terms and expectations. You've both a signed agreement or contract. You did the work, provided the service or shipped the item and, by all accounts, your client or customer is satisfied. Your invoice was sent on time and now they aren't paying in a timely manner. It is absolutely up to you to recover that payment or your bills don't get paid either.
Reminders and Follow-Up
The best way to collect on past-due debts is to know when they're past due. An investment in accounting software or some sort of regular monthly or bi-weekly accounting processes will remind you who has paid and who has debts outstanding. If you haven't set up your internal collections policy, now is the time to do so. An example would be as follows:
- 3 Days Late - Send a standard "did you overlook your bill" letter or email.
- 1 Week Late - Send standard letter again, let them know it's their 2nd notice and their bill is overdue.
- 15 Days Late - Send a personalized letter, let them know it's their 3rd notice and follow up with a phone call.
- 30 Days Late - Make a call, let them know they've received 3 prior notices and the account is going to collections.
- 45 Days Late - Send to Collections agency.
Another best practice is to send a reminder before the invoice is due. In some cases, the friendly prompt will motivate your customer to locate the invoice and pay on time.
Get Paid in Full
If the email or letter reminders are unsuccessful, making a phone call is the next logical step. Speaking to your client over the phone is more difficult to ignore and could spur them to pay you immediately. The phone call could also give you more insight into the customer's payment delay. Here are some tips to getting full payment and talking to your customer over the phone.
Listening - Listen to your customer. They may have a legitimate reason for the delay and still be willing to pay in full.
Persistence - Be pleasant but persistent. While it may be frustrating to ask for money, remember that it's your right to ask for what you want.
Options - If your client can't pay the full balance immediately, you can still offer options to get paid in full. A payment plan can be helpful.
Remember, when collecting a debt, start with asking for the balance in full. If they can’t pay the full balance, don’t offer a discounted dollar amount right away. Instead, ask “How short of the balance are you?”. This may help increase the recovery amount and ensure that you’re not negotiating against yourself.
If your customer is still unable to pay the balance in full immediately or over time, then you can negotiate a partial payment. Negotiating a smaller payment with your customer may not be the ideal but at least you'll recover something rather than nothing. If you believe you are still unlikely to get paid, a collections agency can also help recover the past due amount. BYL Collections doesn't collect a fee up front but rather takes a percentage of the amount recovered.
Asking for money doesn't have to be uncomfortable for you or your accounts receivable department. One late paying customer can be the learning experience needed to build in accounts receivables and internal collections policies in your organization. You can also include these policies when negotiating a contract with your customer. These procedures give your clients a heads-up that you will be picking up the phone if they're late paying the bill.