By Campbell King

Last week we gave you some proactive strategies to help you get paid by your customers on time and in full, avoiding the need to chase your debtors. Unfortunately, if you provide credit terms to your customers, you are going to have to chase payments at some point.

Assuming they don’t have an issue with your product or the work performed, a customer generally fails to pay on time for a couple of reasons:

  1. They simply forget; and/or
  2. They have cash flow problems.

The first reason can be solved quite simply with prompt reminders. The second can be more troublesome but won’t necessarily mean you aren’t going to get paid. By being proactive and communicating effectively with your customers you will overcome the majority of payment issues.

Be firm but fair

Most businesses will experience cash flow problems at some point. If a customer is honest about their situation it is better to be a little sympathetic in your approach rather than setting the dogs on them straight away, especially if you wish to enjoy a good relationship going forward.

There are two important reasons you need to be proactive in collecting your debtors:

  1. So that you don’t experience the same cash flow problems as your customer; and
  2. To make further sales – Customers with outstanding invoices are unlikely to purchase additional products/services from you whilst they owe you money. Collect your debtors and you’ll make more sales.

If you find yourself in a position where a customer hasn’t paid then consider these practical steps:

1. Pick up the phone

We see too many businesses continue to send monthly statements and reminder invoices well after the invoice has become overdue. Clearly the approach isn’t working for that particular customer. Your customer can’t ignore you when you are front and centre on the phone.

Ask the following questions:
• Is there any reason the invoice has not been paid? – You will be able to gauge the situation and make an informed decision about how to proceed. They may even make payment on the spot!
• When can we expect payment? – If the extended terms are acceptable to you then set a new payment date and move on. Even better ask them if they can make a part payment immediately.
• What would you like me to do if you do not pay by the said date? – This puts themselves in your position. They can’t argue your course of action if they came up with it!

Just remember to be friendly, polite and non-emotional about the situation.

2. Follow up with an email

Put your phone call in writing by sending a quick email along the lines of “Hi, Thanks for your time on the phone today, I have attached the outstanding invoice/s and note your commitment to pay by DATE.” This creates record of your conversation in the event there are any disputes.

3. Hold them to account

It is important to hold them to any agreed payment date. If you don’t then they will expect this on every occasion. Also be wary about providing further credit until outstanding invoices have been paid.

If they haven’t paid by the agreed date, call them and make sure they are still planning to pay.

If all fails

If this approach doesn’t work then your relationship with them has likely deteriorated past repair. Now it is simply about getting paid, especially if the sum is material to your business.

Here you have a few options:
1. Engage debt collection services
2. Take legal action
3. Call it a day

Not getting paid isn’t great but throwing good money after bad is worse. Sometimes it is just better to cop it on the chin, move on and remember not to make the same mistake again. Take a moment to read our tips on proactive debtor management. By implementing the strategies outlined you can avoid the need to chase payment altogether.

How we can help

As a client of our Business Essentials Plans, we can help you work out the best approach to different situations as they arise. Our clients can also engage us to help them develop a detailed debtor collection plan for their business as well as set-up systems and procedures to help with debtor collections.

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