Chasing ongoing clients who are not paying their invoices is a challenging balancing act. Avoiding disruptions to your cash flow is key for any business, but coming on too strong when collecting payments from clients can damage relationships with valued customers (and is often illegal).
The trick to collecting old accounts receivable is to find ways to collect money from customers while maintaining the friendly, professional manner that made them want to do business with you in the first place. Below are some of our debt recovery tips for collecting money from clients who won’t pay, without endangering your working relationship with them.
1. Establish invoice tracking systems
Reviewing your accounts receivables regularly — ideally several times a week — and establishing a system for following up on any lapsed payments is crucial. It takes the risk of arbitrariness and guesswork out of the question of how to collect unpaid invoices.
Start by automating a standard procedure, complete with a script for phone calls or letter templates. These should be followed in every instance and tailored to several points: when an invoice is three days late, 15 days late, 30 days late, and so forth.
Include reminders to keep detailed records of the unpaid invoice and subsequent follow up attempts throughout the entire process. Keep them on hand for reference whenever you’re contacting the client.
2. Follow up with a letter
A reminder letter is a way of chasing invoice payments while still maintaining a professional working relationship with debtors. We’re often asked what to say when collecting accounts receivable, and how to balance firmness with friendliness.
First and foremost, remember to remain calm, confident and polite in all dealings with debtors — ultimately, they are still customers. Never use any threat or intimidation tactics. Not only is this bad business generally, but it could work against you should the debt escalate to legal proceedings. If this happens, you want there to be no question that you acted calmly and professionally throughout the debt collection process. Threatening language will only reflect poorly on you, both at the time and in hindsight.
At the end of this initial follow up letter, ask the client to contact you to discuss payment. This opens the door for them to broach the topic of any financial difficulties they may be experiencing. Ideally, prompting the client to call or otherwise contact you will be enough to solve the issue. If not, then you may have to take this next step yourself.
3. Make a phone call
If your client hasn’t made the overdue payment or reached out to explain why not, a phone call may be the next step. Ensure you maintain a professional yet firm manner while talking to them.
Often, due to the more personal nature of a phone call, this is the stage in which clients who’ve missed a payment due to financial difficulties on their end will confess as much, allowing you to better gauge the situation. If you encounter any hostile behaviour, try to remain calm and de-escalate the situation if possible, while still reiterating the need to resolve the issue.
4. Re-establish payment terms and options
Depending on your firm’s policies and your client’s financial situation, offering other payment options and terms can be an effective way to recoup money owed — but you must weigh up the opportunity costs carefully.
Consider the value of the client to your firm, their prospective customer lifetime value going forward and the likelihood that they’ll recover from financial difficulty in the future. Offering an instalment plan over an agreed upon timespan can be one solution, with interest or late fees for any future lapses.
Partial payment is another option for those who prioritise recovering the debt in the short term over the long-term loss of the full payment. However, we recommend seeing a professional debt collector before taking this route.
5. Send a letter of demand
After sending two reminder letters, the next step is the letter of demand. This letter enforces a clear payment date before escalating the process to a professional third party (debt collector) or pursuing legal action, signalling that you’re serious about recovering this debt.
6. Outsource to a professional debt collection agency
If you’ve exhausted all of the above options, the time is right to bring professional debt collectors on board. Research the agency in advance and ask about their techniques, processes, and tools for tracing runaway debtors (including whether they offer comprehensive debt investigations for hard-to-track debtors). Debt collectors are typically equipped to go above and beyond in the recovery process. Depending on the nature of your contact with the debtor in question, you might require the debt collection service you hire to do just that.
Whilst it might be an option that many businesses will treat as an absolute last resort, a debt collectors are suited to and experienced in the debt collection process. With their expertise and in-depth knowledge of the law and guidelines, hiring a debt collection agency can be the quickest and best way to collect past due accounts. The presence of an impartial third party can sometimes be all it takes to convey to the debtor that you ‘mean business.’ Hiring a debt collection agency could be what you need to get that overdue payment settled promptly, without damaging the working relationship between the debtor and your firm.