If you don’t get full payment in advance, your customers will owe you money and at least one of them will delay payment. So what do you do? Read on…
First, the mindset
If you hate debt collecting, delegate or outsource it. I know debt collecting is painful for a lot of people, but this post will help and you can always delegate or outsource the job. I will say “you” a few times in the post, but that can apply to whoever is doing the job.
Take action as soon as you can. Don’t let part of your customer’s payment delay be because of you.
Be proactive. Do everything you can to move things along. More detail on that below, but make sure to do everything possible to help make it easy for your customer to pay sooner.
Log everything. All the calls, written correspondence, who you communicated with on what date, what they said and committed to, etc. This will allow you to follow up commitments, and will also come in handy if you need to start legal action. You will also know what worked last time, if you need to follow up that particular customer again.
Call, don’t write
It’s more confronting for you, but a call is so much harder for someone on the other end to ignore.
Send invoices and statements promptly, as this helps your customers keep on top of their paperwork and makes you look more efficient with debt collecting.
Being live on a call allows you to tailor your approach to the individual customer. You need to be firm enough to get payment, while still being friendly enough to get future business from them.
Check the rules in your area about how frequently you can contact a debtor. Too frequent can be considered harassment and you could get in trouble.
Apart from the above, contact them as frequently as possible. There is a saying: “The squeaky wheel gets the grease” and that is often true with debt collecting.
Regular contact allows you to follow up commitments sooner, and your requests for payment will be treated seriously.
Leave it too long, and the customer may go out of business before you get paid.
Get a commitment
Creditors departments are generally not terrible human beings, and they often work hard at a painful job, but you need to treat them as if they are sneaky, lazy liars that need to be held accountable.
Remember to always get a commitment from them and then contact them if/when they breach their commitment.
After they give you a commitment, ask to make it earlier. Try to make it less than a week away.
Do they have what they need?
A common excuse is: “Sorry, I don’t seem to have a copy of that invoice.”
If you email invoices through Xero, that tracks when people open the email. At the very least, you can quote the date and address that you sent an invoice to, and then ask them to search in their emails at that date.
If they still can’t find the invoice, then email it to them live on the call and confirm that they have received it.
Then ask about the next steps to getting paid, and get a commitment.
Don’t forget to comply with their requirements for invoices, whether that’s sending to a particular email address, including their purchase order number, or whatever their rules are.
You could also focus on completing the work faster, so you can invoice faster.
Keep everybody in the loop
If your customer is a large organisation, you might start speaking to the creditors department and they say that they are waiting for someone in a different department to approve your invoice.
So be proactive and ask to be transferred to that different department to help move things along. If the invoice has been approved on one end, ask when it was done so you can help the creditors department find it.
If you’re emailing instead of calling, make sure everyone involved is emailed at the same time.
Good cop, bad cop
The first contact should be friendly. People make mistakes or forget invoices. And if the creditors person likes you, your invoices will get favourable treatment.
Each successive contact becomes less friendly and more firm, and you turn into the bad cop.
Don’t be afraid to lose a customer who doesn’t pay: what’s the point of doing future work with them?
But it can be useful to have a good cop that can smooth over a customer relationship if you get too firm.
Your lawyer is the ultimate bad cop. If you have problems with customers paying late, speak to your lawyer about the options in your area for legal action, including the time required, the costs involved, and what notes you should take while debt collecting. It might not be worth trying to collect small debts, if the cost is too high, the process too long, or the likelihood of success too low.
Also ask your lawyer to draw up an agreement that your customer signs before you start, or terms on your invoices, that include helpful features for you, e.g. late fees and interest, that debt collection costs are paid by your customer, that any products you supply belong to you until payment is made in full (so you get them back if your customer goes into liquidation), and others. You can buy templates online, but make sure that they apply in your area.
Prevention is better than cure
All the above are good starting tips, but wouldn’t it be better if there were no late payments to collect?
The ultimate prevention method is to get payment upfront. Don’t start work until full payment is made. Be the best option in your market (cheapest, quickest, highest quality, etc), or super valuable to your customers, then your customers will treat your better and you can use that position to demand better terms and prices.
Deposits and progress payments are a good second option. Don’t continue the work until payment is made. It is always useful to have some leverage, like incomplete work.
Another good option is having authority to bill your customer’s credit card or bank account as soon as you issue an invoice.
You could offer discounts for upfront, early or on-time payment. I generally don’t advise using discounts, but you could always increase your prices such that the “discount” brings the price down to your normal price, e.g. say you want to offer a 3% discount for on-time payment of your $135 service, then increase your price to $140 so that you still get at least $135 after the discount. The formula for that is: price / (1 – discount), e.g. $135 / (1 – 0.03) = $139.18, which I rounded up to $140.
I hope this was helpful! If you have any challenges collecting debts and need some help, book a call.