Sometimes a company is faced with unpaid invoices and even broken contracts. However, the collection of accounts receivable is vital for a company. Uncollected receivables quickly lead to a decrease in your cash flow, which negatively impacts your working capital. In order to avoid these situations as much as possible, discover tips to collect your receivables on time and better manage your accounts receivable.
Check the solvency of potential customers
Prevention is better than cure, they say? It would be better to anticipate the situation of a new customer than to be faced with his insolvency. Therefore, find out and check the commercial solvency of each client before granting him your trust.
This approach offers you two solutions. The first is to deal only with credible customers who pay their bills on time. That is, you decline any contract with a potential customer with a questionable credit rating. The second solution is to set payment terms based on the customer’s financial situation. For example, if a potential customer is in an uncertain situation, you can require cash payment for all or part of the contract.
Offer multiple payment options
It would be unwise to fit a diverse customer base with different lifestyles into a single payment policy. You will increase your chances of getting paid in a timely manner by offering flexible and diverse payment options.
Here are some traditional payment options you can accept in your business:
– Credit and debit cards: Your customer prefers to pay by credit card because of the grace period offered by most corporate cards.
– Direct deposits or Interac transfers.
– Instalments: For outstanding accounts, consider accepting post-dated cheques or electronic payments in instalments until they are paid in full.
– Partial payments: Get the client to pay a portion of the contract in cash, and write down all the conditions for payment of the remaining balance in case of a dispute. Give a copy to the customer to confirm this agreement.
Request a quick payment
Prompt payment allows you to get your money in your hands as quickly as possible. It allows you to get the customer to settle the contract as soon as possible without putting pressure on them. There are several strategies to apply the concept of prompt payment. We have among others:
– Cash payment: You require full payment at the time of sale, as in retail.
– Percentage deposit: If cash is not an option, ask for a deposit of 30% to 50% of the total amount at the time of sale.
– Prompt billing: When you can’t negotiate a percentage deposit at the time of sale, send the invoice to the customer as soon as possible to collect your due quickly.
Alternatively, you can offer a discount for prompt payment. This can be as little as 2% off the invoice total if payment is received within X business days.
As a last resort, require that the invoice be paid in full within X business days and apply interest if payment is not received on time.
Cultivating a good relationship with customers
Despite everything, every business wants to have the best possible relationship with its customers. That said, don’t jump to conclusions about unpaid invoices. Not every instance of uncollected receivables means that your customer is acting in bad faith.
We recommend that you be cooperative and communicate with your customer about any outstanding amounts as a first step. It may be a simple misunderstanding. Perhaps the customer did not receive the invoice. In some cases, the customer may not want to pay simply because they are not satisfied with your services or because there was a shipping error. Find out the reason for non-payment. You may be able to resolve the problem and collect your receivables.
On the other hand, you may find yourself in a situation where your customer is having financial difficulties. In this case, think things through and find constructive solutions. Propose a new payment schedule on the condition that they pay part of the debt immediately. If they offer to pay the debt in installments, agree to their request to pay in installments. Put everything in writing and have your client sign it. The customer can no longer withdraw from the agreement.
Prepare a dunning schedule
In business, some late payments are inevitable. In fact, you must have a solid dunning process that builds up to a crescendo for your collections to be effective.
It is often recommended to start from written reminders to telephone reminders. Always dun your customer days before the due date, as a reminder or compliance check. This preventive reminder is particularly effective for long payment terms. It also protects you from “smart” people who always try to postpone payments.
If two weeks after the due date and in spite of numerous written and telephone reminders you still have no news or if your customer is playing dead, you can send a letter of formal notice with a deadline of one week. Take care to mention the late payment penalties and to remind them and the different clauses provided for in your general sales conditions. If, despite all these actions, there is no sign of payment, you must urgently call in a professional collection agency.
Using the services of a collection agency
When it comes to collecting your debts, you need to be firm and polite. After all, your business depends on these receivables. Most of your customers will agree to an out-of-court settlement to settle their accounts.
However, after repeated unsuccessful reminders, do not hesitate to use the services of a professional collection agency. These are agencies that have the knowledge, skill and experience to collect a debt. The collection agency will act independently and within a specific time frame to collect the debt. Of course, the services of a collection agency are subject to a fee, which is usually based on the amount of debt collected.
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