Tips for Collecting Past-Due Invoices
General Business News
Tips for Collecting Past-Due Invoices
Even in a strong economy, collecting unpaid invoices and having clients who are slow to pay can be frustrating. With the unemployment rate seemingly stuck at around 9 percent and the economic forecast uncertain at best, small business owners are seeing usually reliable customers extend their standard payment time frame by 30 days or more. With clients who don’t pay in a timely manner, your business could experience a serious cash flow problem.
The first step in avoiding slow paying clients, of course, is to research them before you agree to provide them a service or product. In a bad economy, however, you don’t always have the advantage of choosing clients with the best reputations.
If you have past-due accounts, how do you collect the money you’re owed without alienating business clients you appreciate and hope to retain?
Especially if your business is experiencing tough times, you don’t want to lose valuable clients – even those who don’t always pay on time. After all, getting paid eventually is better than not getting paid at all. Non-payers, of course, are a different issue. But until proven otherwise, try to assume that they will eventually pay up.
Stay Calm, But Act Now
Even though you have bills to pay, a slow paying client this month might pay faster next month. They are likely facing a difficult business environment, so treating them with respect bodes well for you when things improve. Unless the customer is a repeat offender, assume that they have a legitimate reason for not paying your invoice when it’s due. Don’t overreact, but do act promptly to resolve the issue.
Check Your Records
Especially for larger clients, check to make sure there were no errors on the invoice, such as a wrong or missing purchase order number, date, address or other information that could delay payment. Don’t assume that your customer will catch these mistakes and let you know.
Take a Friendly Approach
Start with a pleasant, professional phone call or e-mail to make sure your invoice was received. Although this might sound like an excuse for not paying on time, it actually does happen – especially with large corporations. Often, the payment can be expedited once you bring it to their attention.
Go Up the Ladder of Responsibility
If the invoice is correct and your contact is vague about when you can expect payment, you might need to go up the chain of command. Depending on whom you spoke with at the client’s office, try to talk to someone with more authority. The higher up you go and the more responsibility that person has in the organization, the more important it might be for them to protect their company’s reputation. If you’re doing good work or providing an important service or product, an executive in upper management might be more aware of that fact than a clerk in the accounts payable department. It might be as simple as asking the right person. Not only can you resolve the current problem, you might even be able to negotiate faster payment terms for future invoices or set up a direct deposit arrangement to avoid the “check is in the mail” syndrome.
Escalate as Needed
If simply talking to the right people in your client’s organization does not get timely results, you might need to consider more aggressive tactics. This does not necessarily mean threatening them with lawsuits or collection agencies. Instead, be persistent; call on a regular basis or announce that you will come by to pick up the payment. Offer your client an easier way out through installment payments or even a substantial credit if they agree to pay you now. Offering a discount can be cheaper than turning them over to a collection agency.
If you’ve talked repeatedly with the client, offered a payment plan or a discount, and are entertaining thoughts of a lawsuit or hiring a collection agency, retaining their business might not be very appealing; however, before you hire a collection agency or take the client to court, try a series of collection letters first.
Well-crafted collection letters have the advantage of being more professional, more formal and more serious in tone than a personal call or email. As such, they might be effective in getting your client’s attention and letting them know you are determined to collect your bill.
The content of your letters can repeat previous offers of discounts and payment plans, reminders of accruing interest (if applicable) and other payment incentives. Each letter, depending on the response you receive, should be increasingly demanding until the final letter states that you will take all appropriate actions to collect.
Evaluate your Relationship
Whether or not to turn your client over to a collection agency or take them to court will ultimately depend on your relationship with them, how long they’ve been your customer, their past behavior, how much they owe you and what it is worth to you in terms of time and costs to collect.
In the long run, try to research clients before you do business with them; make sure your invoices are accurate; take prompt and appropriate action; and reach out directly to the right person when an invoice is late. This will help ensure that you are doing your best to get paid on time and cultivating good business relationships.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.