Collecting money from customers after a sale has been made is one of the biggest frustrations that consumes time for SME’s and failing to collect money in a timely manner directly impacts working capital. This article provides 9 best practice measures that businesses of all sizes should be implementing in order to ensure debtors are collected as quickly as possible.
If your business is having trouble collecting debts, the team at Maddock’s Accounting & Advisory can assist you with improving this process in order to drive improvements in working capital. We can help refine your procedures to remove the hassle from debt collecting and improve the efficiency of your business.
Contact the Maddock’s Accounting & Advisory team here to find out how we can help.
“1. Communicate with your customer before a payment is due
A good way to stay on top of your customer’s mind is to continue to support them after you’ve made the sale. Genuinely reach out with the purpose of connecting and adding value. Take the opportunity to check their satisfaction with your goods or services, how stock is moving, and if they need anything further from you. Your sales team is a great resource at this point in the collections journey.
- Accept credit card payments
Paying by credit card is common consumer behaviour—MYOB research showed that 64 percent of Australians prefer to pay by card and 5.1 million Australians walk away from a sale if they can’t pay by card—so businesses should also meet this expectation. Accepting online credit card payments makes it easy for customers to pay you: customers can pay 24/7 and they don’t need to rely on having cash in their bank account to pay you.
- Add a PAY NOW button to your reminder emails and invoices
A simple ‘Pay Now’ button on emails and/or invoices, leading to your online payment gateway, means your customer is one click away from paying your invoice quickly and securely. They no longer need to spend time searching for a cheque book, envelope and stamp!
- Group all outstanding invoices into one statement
Present information easily and in a streamlined way to your customer. Avoid bombarding their inbox with multiple overdue statements. Customers can get irritated and confused by multiple statements that they need to study and tally. Make it easy for your customer to see how much they owe and reduce the likelihood of a customer not paying because they didn’t understand your invoices.
- Map and track your accounts receivables
Your business should be able to pinpoint priority problem areas quickly. For this, you’ll need deep data about your accounts receivables so you can assess the impact of overdue debt on your cash flow.
If your accounts receivables are managed efficiently, here are a few questions your business should be able to answer easily:
- What is the total amount owing to my business?
- What is the total overdue amount owing to my business?
- How many accounts are 30 days, 60 days, 100 days etc. overdue?
- Which customers owe me over $10,000, $50,000, $250,000 etc.?
- Which of my customers are in the 2nd follow-up, 4th follow-up, legal demand stage?
- Which customers are we no longer supplying until a payment is made?
- Which customers do our management team need to be alerted about (for example, your management might always want to know about customers who are in your ‘red zone’ i.e. are over 60 days overdue)
- What is my largest overdue account worth?
- Which is my oldest overdue account?
Your accounts receivables staff member might manually deliver this type of information, or ezyCollect can produce this type of mapping and tracking information in seconds. (Watch this demo.)
- Enact a multi modal communications plan
Your business should have a pre-planned, escalating communication strategy ready to activate as soon as an invoice is overdue. Use a variety of channels to reach your customers with reminders: email, post, SMS, phone. You can do this manually, or automation software can track invoices for you, so that as soon as an invoice becomes overdue your customer starts receiving polite system-generated reminders. When your customer responds, listen and respond with empathy; this can go a long way to understanding your customer’s payment difficulty, coming up with a payment plan, and saving your relationship. Record your collections activities and conversations in one place so you have a complete history at your fingertips.
- Escalate to debt collection and/or legal action
You didn’t go into business to start legal action with your customers, but remember, you didn’t go into business be a substitute bank to them, either! Starting debt collection or legal action is often the point at which businesses stall in the debt recovery process. Don’t panic—referring your customer to a debt collection or legal agency doesn’t mean your payment problem will escalate into a court case. Even a simple demand letter from a third party can be enough to prompt an outstanding payment.
- Thank your customer for payment
Your simple thank you is positive reinforcement that you are monitoring your accounts and that you appreciate your customer’s business. A ‘thank you’ email can be generated from your accounting software (if it has that functionality) or manually. Whichever method you use, never underestimate the power of a timely ‘thank you’!
- Undertake credit monitoring
Monitoring your customers’ credit activities means you can put safeguards in place before your business is adversely affected by events like a customer declaring bankruptcy. Some credit reporting bureaus offer credit monitoring services to alert companies of changes that may affect their customer’s credit status. Receive email alerts about activities that could be detrimental to your business:
- Court judgements
- Payment defaults
- Insolvency notices
- Mercantile enquiries
- Administrator or liquidator appointments
- ABN/ACN changes
- Address or director changes”
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