10 Debt Collection Tips for Small Business Owners
- August 31, 2018
- Posted by: Quarles Business and Financial Strategists
- Category: Business Advice
10 Debt Collection Tips for Small Business Owners – Get Paid Faster
If you run your own small business, chances are you could benefit from these debt collection tips.
When it comes to invoices, clients and customers are very reliable… at missing their payment due dates and causing you a great deal of frustration.
When you don’t receive payment, it is important that you have a plan in place for debt collection. You don’t want to start making angry phone calls when the issue could be resolved in an easier way.
Get prepared for missed invoiced payments by reading our 10 Debt Collect Tips for Small Business Owners and start getting paid faster!
1. Set clear payment terms and deadlines
Set your expectations as early as possible in the process. Having clear payment terms and deadlines will mean that both you and your customer know what is going on.
This will help streamline future communication and help make sure your invoice gets paid. It is much harder to ignore payment when both parties have agreed when the invoice will be paid.
Try setting 30-day payment terms with your invoices, and make it clear what date this will end on. Doing so will allow you to mark payments as overdue easily, and then you can start charging interest and begin your debt collection process.
2. Make paying your invoices as easy as possible
While the responsibility is on your customer to pay the invoice, you should be doing everything in your power to make sure they do. A big part of this is to make paying your invoices as easy as possible.
Set up multiple payment methods so your customers can pay in a way that suits them. Having EFTPOS, PayPal and other online payment options will help make the process easier.
Simple payments for your customer relies on your accounting system, so make sure you take the necessary steps to simplify your accounting. If you are using Xero, you can easily set up Paypal payments to make you and your customers lives easier.
Customers won’t want to spend time figuring out how to pay you, so make it as easy as possible for them.
Your debt collection efforts are much more likely to be successful if you only need a few minutes of their time.
3. Give frequent payment reminders
Your unpaid invoices could be due to the customer trying to avoid paying, but they could have genuinely just forgotten about it. It can be an arduous process chasing up customers with overdue invoices, don’t let your good (but forgetful) customers become a major part of your debt collection process. Remind them a week before their payment is due to reduce the number of overdue payments you have to deal with.
Once a payment is deemed overdue, you should give the customer a follow-up call. If you allow them 30 days to make the payment, you can call them on day 31 to remind them about the overdue payment. If the customer says they will pay you next week, ask them what day and then call them the next day if payment has still not been made.
When it comes to invoice reminders, Xero has you covered here as well. Set up an automated reminder system to follow up with clients without wasting your time:
Continuously reminding them about their payment will make it harder for them to ignore you, and help you keep track of them.
4. Create an incentive for on-time payment
If you have customers who are frequently missing their payment deadlines, you may benefit from offering a small incentive for on-time payments. Having good cash flow is very important for small businesses, and you don’t have the time to be chasing payments all day.
A small discount could help you get your invoices paid faster, which would likely benefit you more than the cost of the discount.
This will be specific to your business, so make a judgement based on the number of overdue payments you are getting and how much they cost you.
5. Stay calm and avoid harassing
So you’ve set a clear deadline, made the payment process easy, given them frequent reminders and offered an incentive for on-time payment, and they still haven’t paid?
When you are dealing with a customer who doesn’t pay you on time, it’s important to stay calm and approach the situation sensibly. Getting angry and yelling at them over the phone is only going to reduce the chances of you collecting on the debt. People generally respond better to positivity, so when they are faced with the full might of your wrath, they aren’t going to want to cooperate.
The same goes for harassing them about payments. Giving your customer an angry phone call every morning isn’t going to make them want to pay your invoice. Friendly reminders are great, but try to keep them friendly and don’t overdo it.
6. Keep clear and well-documented records
Having detailed records is one of the most important parts of small business debt collection. If the debt ever reaches a legal battle in court or if they make disputes about payment, you will want to be able to prove exactly what happened.
Take notes from your meetings and phone calls. Keep a copy of emails and letters that you’ve sent. Record keeping and document management is an important part of business, especially when it comes to debt collection. Don’t get caught out, make sure you are prepared for this situation!
7. Know your rights
It is important that you know what you can do if a customer doesn’t pay their debt, and be prepared to take things to the next level. The sooner you understand your rights and the legal options you have available, the easier your debt collection process will be.
Not only will you be able to create a complete debt collection plan, but you will also be more confident when dealing with customers.
If you are unsure what your legal options are regarding debt collection, check out this article: What Are My Debt Recovery Options?
Knowing your rights is important, but you often won’t have the time, money or motivation to take things to the courts.
It’s time for plan B of your debt collection strategy.
8. Offer to settle for less
If you are considering simply writing off a payment, it might be worth cutting your losses and offering a reduced price to the customer. This should only be used as a last option with customers who you do not plan on dealing with again. You don’t want to encourage customers to wait for a discount, or offer a discount too early for an invoice that would have been paid in full later.
Your customer might be equally stressed about the payment, and jump at the opportunity for a discount. If all else fails and you don’t have time or money for a legal pursuit, then this could be a good strategy to reduce the amount of money lost from failed debt collection.
9. Talk to a collection agency
If you are continuously losing money through unpaid debts, then it may be worth talking to a debt collection agency to see how they can help. They can help save you time and recover more unpaid invoices.
Consider the approximate cost of your unpaid invoices and the time you spend chasing up customers, and compare it to the cost of the service. If the finances add up, then it might be worth getting some help with your debt collection.
10. Run credit checks before getting involved
The easiest way to deal with bad customers is not to get involved with them in the first place. Depending on how much of an issue you have with unpaid debt, you might benefit from running credit checks on your customers.
This won’t be relevant or possible for all businesses, but if you are losing big chunks of money from failed debt collection, then getting a better idea of who you are dealing with before doing business will help save you time and money.
It can be hard to manage your finances as a small business, especially when your cash flow is suffering from unpaid invoices.
If you follow the steps outlined above, you should find that your invoices are getting paid faster and you are losing less money from unpaid invoices.
If you want to make your debt collection easier, while also improving your accounting system, talk to us about getting started with Xero. Two birds with one stone!
If you need help getting your finances back on track or are interested in growing your business, book a free, no-obligation consultation with one of our business advisors today!