Q: I have customers that are either not paying on time or only making partial payments. How can I collect what I am rightfully owed?
A: This type of scenario is unfortunately a sign of the tough economic times. Businesses extend more credit in order to generate more sales, but that comes with a high element of risk. The cash flow of your business can become seriously affected when that credit is not paid back on time. If this is becoming an issue for you, it may be time to look at your credit policies, as well as putting a collection procedure in place that nips slow payment in the bud.
The first thing you need to do is take a look at your accounts receivable to get an idea of what is current, what is slightly overdue, what may be collectible with a little prompting, and which accounts are effectively as good as written off. If you find any in the latter group, think about handing the accounts over to a collection agency so that you can focus on those that you may be able to collect on. The accounts that you deem to be collectible, but which are past due, need you immediate attention. Before you take action, though, you need to ensure that you
are in compliance with the Fair Debt Collection Practices Act. If you are unaware of the details of said act, please refer to the Federal Trade Commission at http://business.ftc.gov/credit-and-finance/debt-collection
for further information.
It is never easy to contact customers delinquent in their payments, but it is necessary. You need to be able to put aside relationships and potential future business so that you can focus on getting paid what you are owed. Talking to the customer personally is often enough to get the ball rolling on a past due account. It is not always negligence on the part of the customer, and it can sometimes be a technical glitch or some other issue that is at fault. If it does turn out that the customer is experiencing a temporary cash flow situation, you may still be able to work out a payment plan that is equitable to you both. That said, an agreement has to be reached and agreed to when following this route. It also has to be made clear to the customer that any sales taking place before the full amount is paid will be done on a COD basis only. Most customers will happily honor this type of agreement, but those that don’t will then have to be transferred to debt collections.
The final step in the process involves putting together a detailed credit sales policy. Decide which customers are eligible for credit and consider the length of time that is allowed before payment is due. An option that can be used here is to offer a discount to those customers that pay ahead of the due date. On the flipside, you may also consider adding late payment charges for those that slip past the due date, keeping in mind that there are laws in place that dictate how much can reasonably be charged. If you need further information, be sure to talk to Collectivity, LLC.