Tips for Effective Collections

So, part of your job is collecting payments. You're tired of pestering people and you notice that despite your efforts, you still don't seem to collect much. Collections may be a necessary evil, However, learning to do it more effectively can alleviate some of your trepidation. Follow these tips and tricks for more effective collections.

The key to successful collections is formulating a payment system for your business. You need to determine a few things:

• What amount of time constitutes a late payment?
• Will you be charging a fee for late payments?

Once you have these two things, you must include the information on your invoice as well as any other pertinent items in the contract agreed upon between the business and the client. This leaves little room for clients or customers to feel picked on if your policy is the same across the board.

Once you've created your invoices and late payment system, it's time to determine your process for collecting. No matter what your system is, never let overdue accounts go without action.

Customer satisfaction call

American Express Business explains that dissatisfied customers are more likely to pay late, so a customer satisfaction call is a great way to reinforce the notion that payment is due soon. It's important to make this call before a payment is late so that you can lay to rest any issues the customer may have that will lead them to make a late payment. Be sure to document all communication with the customer in order to facilitate an easier process.

Payment is now late

Most businesses use a method of simply reprinting the original invoice to send to the customer when payment is late. It's usually accompanied by a "Past Due" stamp or the equivalent, but as you may have noticed, it doesn't seem to be getting results. Morebusiness.com suggests using a personal note to attach to the invoice in order to facilitate faster payment. It brings a more human element that conveys we are people that have bills to pay and without this check, things might be tight. It's harder for the customer to ignore. A general rule of thumb for the payment being late is 10 days after the original invoice has been sent.

2nd Attempt

Payment still hasn't been received so it's time to send along another reminder. It's a good idea to send a short letter with another duplicate copy of the invoice that has not been paid. The letter should not be threatening but rather an understanding note stating phrases like "you may have forgotten" or "a friendly reminder to keep your account current" should get the point across. This should be done approximately 20 days after the original invoice was sent out.

Time for a call

At this point, the payment is generally 30-40 days late. A phone call is warranted to get to the bottom of the problem. Be polite and explain the reason for your call and the services you provided. If they state that they cannot pay now, ask for a partial payment or a date when the payment can be made. If your client is local, you may also offer to pick the payment up yourself. This makes it very difficult for the person to wiggle out of the responsibility.

Another letter

It's now time to convey the seriousness of the matter. Send another letter along with the past due invoice stating that the account is now over 50 days delinquent. Explain that you require payment immediately or you will no longer be able to offer credit to them.

No more Mr. Nice guy

The account will now be over 65 days delinquent and your chances of getting paid are dwindling. Another call is necessary to convey the severity of the situation. Again, be polite but explain the consequences of not paying the bill and the steps you will ultimately take if payment is not received. You may offer a payment plan, offer to pick the payment up or ask for a date when you can expect a check.

Final letter

This should follow your last conversation with the customer to solidify your arrangement. Assuming you've come to an agreement, you will list the details of the agreement and explain that if payment is not received you will be forced to turn the account over to collections.

Collections

You've done all you can and still no payment. This is an unfortunate part of the collections process, but likely a necessary one. The account should now be over 90 days delinquent and when all else fails, you may need professional help. You may choose to hire a collections agency to help collect payment. An attorney is also an effective tool as well. Either the collections agency or the attorney can draft a letter or make a call explaining that they will be pursuing the debt in a court of law if payment is not received within a certain amount of time. The threat of being sued can sometimes motivate a customer to pay.