Have you ever found yourself wondering, “How do I get my customers to pay me on time?” You’ve tried sending letters and emails, making phone calls and maybe even threatening legal action.
There are usually four reasons people don’t pay you:
- They’re dissatisfied with the service
- They’ve set their own payment timetable
- They’re short of funds – for the short-term
- They have no money – and it looks like bankruptcy is on the horizon
Here are some tips to help take the crazy out of accounts receivable collections – and have a response for those who tell you, “The check is in the mail.”
1. Collections should be customer-service driven
This is how billing typically works: You send a bill and wait for payment. When it doesn’t come, you call or send an email reminder.
How’s that working for you? There has to be a better way, you say.
Good news: There is!
Turn your accounts receivable collections into a matter of customer service. Here’s how it works:
- Call your customer three to five days before the due date on the invoice.
- Be a good listener. Ask if they’re satisfied with the job that you’re doing for them. If there’s something wrong, they’ll be more than happy to tell you about it, especially at collection time. If they have a legitimate grievance – fix it. You can’t skip this step.
- If they’re pleased as punch, it’s time to ask for your money. You can say something like: “I notice here that we sent out an invoice last Monday. Did you receive it? … Great! When can we expect payment?”It may seem awkward at first, but you’ve called for a reason, so get them to commit.
- Remember the three F’s of collection: friendly, firm and focused. Be earnest and cordial about wanting to know about your service. But, keep the attention on the bill that is due and the service that you provided. If they start to vacillate, you might remind them of payment guidelines that are outlined in the service agreement.
- Don’t have a service agreement? Get one. Put it in writing when payments are due, how much is due up front, whether there are late fees (there should be), and what happens if they don’t pay.
2. Stay ahead of the game
Get the visibility you need from financial management software – it will enable you to look down the road at your finances and help you make better business decisions. You should know which invoices are owed you long before they’re due. Your accounts receivable aging report should be part of a weekly business review – and you might consider looking at it from a different angle.
Currently, your A/R aging report likely is listed in alphabetical order. What if you sorted the list by amount due, not account name? This puts the largest balance first on the list. That’s your starting point. If you’re going after money, go after the big fish first. Your efforts will have a more significant payoff.
Now, let’s take a look at your financial forecast. You should know where your money is coming from at least six weeks in advance. You need that time to come up with money for an anticipated shortfall. You can’t conduct business in panic mode – always worrying whether you’re going to make payroll. Taking a six-weeks approach gives you the time to breathe and come up with a plan.
3. Anticipate responses you might get from late-payers
When it looks like a payment is going to be late, your mission is to find out information about where the payment is, how likely you will receive it and when. You may not resolve every payment on the phone the first time, but at least you’re not in the dark wondering when you money is coming.
They say: The check is in the mail.
You say: Great! I’ll log that into our system. Can you tell me when that was mailed? What’s the check number and amount? With your permission, I can enter the information in our financial software system, and everything will be squared away.
They say: I can make a partial payment now.
You say: Why are you giving a partial payment? When can I expect to receive the balance?
They say: I’m having a cash flow problem. I will pay you in a few weeks.
You say: Can you send a check now that is post-dated three weeks from now? When can we expect to be paid the balance? Perhaps we should develop a payment schedule and get a little bit each month.
They say: I’m not happy and I don’t think I should pay this.
You say: What do we need to do to make you happy and close out your balance due? If you prove you’re serious about resolving their issues, you’ll show them you’re serious about being paid.
They say: Cash is really tight right now; I can’t afford to make a payment.
You say: How bad is the situation? Can we set up a repayment schedule? I wanted to remind you that as time passes, you will be subject to late fees.
If it looks like they will continue to put you off, remind them that once you go to collections they’re responsible for attorney fees, so it’s in both of your best interest to figure it out now.
When you have cash flow problems, it takes your focus off of running your company. Don’t operate from a position of fear – that only leads to making bad decisions for you and your company. Stay ahead of the game with a proactive, customer-focused accounts receivable collection plan to help your cash flow – and ultimately your business.
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