Collecting and chasing overdue invoices is very rarely a straightforward process. There is often a reason why a customer is withholding payment, and quite often, these situations can prove to be more than a little challenging.
Debt collection is a vital component in any business’s credit control process, affecting cash flow and even your relationship with your customers.
However, debt recovery does come with a number of challenges, and in this post, we look at some of these in more detail and some steps you can put in place to get around them.
Late payment of commercial debts
Debt recovery isn’t always straightforward.
Unfortunately, not all customers pay their invoices on time or even marginally close to the due date, making overdue invoices a cost to you and your business.
To help mitigate the cost and time lost chasing bad debts, you need to act fast. The sooner you speak to your customer about the late invoice, the better the chances you have of receiving payment.
Make sure to send a quick email with the invoice attached or speak to someone directly, depending on your relationship with the customer.
Note: You must retain all customer correspondence, as if the debt is then outsourced to a collection agency, they will require all previous communication for background and case building.
Your customers might tell little white lies.
Customers don’t always tell the truth, which might be the case if they are looking to stall or avoid making payment altogether.
You must decide if your customer is genuine or not. Thus, identifying a fake excuse from the real deal.
To help, you could ask more in-depth questions. For example, if they have paid by cheque, you could ask for the cheque number, the postage dates, etc.
You can also help limit the number of excuses available by offering a range of payment methods.
Finally, suppose you have sent warnings and overdue payment letters. In that case, you must follow through on these, adding things such as late payment charges and outsourcing the debt to a commercial collection agency, etc.
Being a nice guy doesn’t always work.
Some customers will continually stall making a payment for as long as they can get away with it. In these situations, you need to take a hard line.
Putting your customer on stop so they can no longer buy goods or services from you until payment is settled, charging late payment charges and interest on all overdue invoices, and outsourcing debts to a professional debt collection team can all help to encourage prompt payment.
You can’t collect them all.
Sometimes, no matter how good your credit processes are, debts are uncollectable due to circumstances beyond your control.
To help, make sure to carry out credit checks on all new customers, look into credit insurance (protecting you against the threat of bad debts), collect payment upfront, or ask for a percentage deposit to secure the work.
Overdue invoices impact your cash flow.
You need to be paid for the product or service you have provided to keep your business going.
Once an invoice becomes overdue, this can negatively affect your cash flow and even impact your ability to pay your bills.
You must know what is coming in and out of your business at all times. You should also look at the spread of your customer base and ensure this is as wide as possible, and we would always recommend that businesses build a healthy cash reserve for emergencies.
You could also look into incentives for early payments, offering discounts on those invoices that are settled early.
Managing the credit-control process is a big job.
Managing cash flow and staying up to date with money coming in and payments going out is vital. You need to have clearly defined strategies and processes in place with information available at all stages.
Ideally, having a dedicated credit controller also helps; however, we understand this isn’t always possible, which is why many companies outsource this area of credit control to professional teams.
Using an experienced collection agency provides you with the benefits of their expertise, skill, and knowledge, saving you a considerable amount of time so you can focus on other areas of the business.
Working as an extension to your team or as your entire credit control arm, outsourcing can prove to be a cost-effective alternative to in-house recruitment.
Debt collection agencies aren’t all the same.
Not all collection and recovery agencies are the same, and you need to find an agency that meets your requirements, specifications, business values, and ethos. Look at the debt collection services they offer; what is their success rate? Do they have any online customer reviews and testimonials? Do they have experience in your industry? Have they worked with similar businesses? Are they members of the professional body, Credit Services Association, etc.?
Direct Route is a member of the CSA, and we use our professionalism and expertise in commercial collections to lead the way in high standards linked to successful recovery.