As a small business owner, there’s nothing worse than having overdue accounts – funds you could be using to enhance sales, replenish inventory or simply make necessary payments to your own suppliers.
Overdue debt is that fragile relationship between wanting to get paid and not wanting to upset the customer that may put a strain on future work. Having the right process and understanding is key to ensuring that overdue debt does not get out of hand.
While there are always going to be those select invoices that take a bit longer than usual to complete, it should be the goal of any small business to reduce overdue accounts. Overdue debt cannot be avoided sometimes however there are ways of achieving success without being overbearing or rude, in fact, there are quite a few proactive solutions that will help reduce the chance of debt becoming overdue.
Understand your Prospects
Guess what!! There is such a thing as a bad customer. When quoting a prospective client do your due diligence on who they are and the reputation they have in the marketplace. This will give you a first glance of any potential issues you may have in the future, if red flags pop up don’t be surprised if you take on the risk and the debt become overdue.
If red flags do appear, we suggest to;
Letter Of Engagement
Having a clear understanding between you and your client is nothing new, create a Letter of Engagement for your business which outlines clearly what each parties’ expectations is. This is critical if you operate a business which is based on retention of continuous work.
This will become quite useful if you ever run into a client who won’t or is slow in paying their bills. Furthermore, this becomes a golden document in the unfortunate event of having to escalate and go to court. Where you sell products or one-off engagements, Letter of Engagements are still considered useful but ensure that payment terms and method of payment are clear on the invoice.
The Letter of Engagement should contain key information such as;
Another way to reduce overdue accounts is to understand what risks you are happy to take and more importantly ensure everyone in your business is on the same page. This can be done by writing a clear and concise credit policy that highlights your terms and conditions. The policy should contain information such as general payment terms offered, process of escalation and reminders and timeline of steps taken before it’s turned over to a collection agency.
Don’t forget to review these policies periodically to ensure they remain current and cover trends in the economy and payments from clients.
Most accounting software now come with functionality which allows you to setup reminder letters and monthly statements. This allows your clients to keep track of what is due and give them a friendly reminder when something may have been missed.
We operate in a world where many businesses get hundred of emails and notifications each day, and sometimes even with best intentions your invoice may go missing or fall part of the dreaded spam. Sending a friendly reminder allows the client to be aware that payment of an invoice was missed. What is even better, is that clients can also be excluded from the process in most cases so you can manage who gets what and when.
If your business is unique there are always third-party providers which integrate to you accounting software which allows you not only to manage your debt but also integrate with payment platforms.
Contact us if you need assistance in setting this up in your business.
As a business owner, you also need to stay on top of outstanding debts to reduce overdue accounts. Nothing is still better than this, run your reports or setup your accounting software with the right information on the dashboard.
Do not be afraid to pick up the phone and have that friendly discussion with your client as to why an invoice may be outstanding. This will allow you to quickly identify what steps you need to take to get the invoice paid.
While it’s frustrating to deal with slow-paying clients, reduce overdue accounts by implementing your own unique solutions and create clear guidelines as to what you expect from those working with you!
One of the trickier jobs for a bookkeeper or business owner to master is effective debt collecting.
If you’re not assertive or outgoing, then phoning up people and demanding payment can be quite a daunting task.
Here are five quick ways to be more confident and effective at chasing debts.
1. Write a credit policy
If you haven’t got this far, this is definitely the place to start. Before you start to chase money you need to draw up a clear set of rules that your customers are expected to follow. Your credit policy should include trading terms you offer your customers, how often you send statements, and at what point the debt gets passed to a debt collecting agency. Your credit policy should then be included as part of your contract or credit application that all customers need to sign and agree on.
2. Don’t waste time
Dun & Bradstreet are specialised in debt collection with over 160 years of operation published the following statistics.
– 6.2 per cent of debts that are one month overdue never pay.
– 26.4 per cent of debts that are three month overdue never pay.
– 42.2 per cent of debts that are six month overdue never pay.
The statistics tell the story; the longer a debt is outstanding then less likely it will be paid. So don’t waste time being soft or nice, get chasing those debts!
3. Get on the phone
Phone calls are far more effective than sending reminder letters. Your initial phone call should be polite, aiming to build http://buylevitra.net/levitra-multifaceted-action-perspectives-application/ rapport with the business owner or account manager. Being polite doesn’t mean you can’t be straight to the point though. Ask if the payment will be sent immediately, if the answer is ‘no’ ask why not; don’t interrupt their response. If they are genuinely having a tough month, don’t just let them ‘pay you when they can’ offer a solution. For example, say something like, ‘how about you pay half this week and the remainder in 14 days’.
4. Don’t buy into excuses
If they say that they have lost the invoice, email them a copy within the hour and phone them back to confirm they have received it. If there is some kind of delay in the system, ask them to look into it today and let them know that you will be calling them tomorrow to find out the details. These techniques will keep the person you are dealing with accountable in what they say they will do.
5. Confirm the commitments in writing
Try to have your debtor commit to paying you by certain time frame. As soon as the phone call is over, email them thanking them for the commitment they made and confirming the agreement in writing. This documents the agreement and if there are issues down the track you have everything that was agreed to in writing and so do they.
If you need help reining in your outstanding debts and improving the management of your accounts receivable please contact us today and find out how we can help.