How to collect payment of outstanding debts to your business
When payment is due don't be afraid to ask. Learn how to collect debts
When payment is due don’t be afraid to ask. It’s your money. If you’ve done the job right, you’re entitled to be paid.
Any disputes or complaints that delay payment must be addressed promptly. Some customers will pay promptly while others are habitual late payers. You will, of course, have a timetable for chasing debtors. It could be something like this:
- The sale: Send out invoice
- 21 days: Send statement reminding payment due after 30 days
- 30 days: If not paid, send reminder statement, restating terms and pointing out payment is overdue
- 45 days: Send reminder
- 50 days: Stop supplies until paid
- 60 days: Send final reminder
- 90 days: Assign debt to collection agency
This is just an example. The important thing is to have a clear timetable to keep receivables under control. Of course, the above procedures should be supplemented with phone calls – one of the most effective methods of chasing debts – faxes, e-mails, and visits. You can access some sample reminder letters on the Better Payment Practice Group website.
“We’re very much involved in advising small to medium firms in ways to tighten procedures and collect debts,” says Trevor Phillips, CEO of credit and debt management specialists Credit Professionals. “Debt collection requires pleasant persistence. It’s a selling job. Companies have to persuade customers that they have to be paid.
“Once a debt gets over 60 days overdue, a company has probably exhausted all its own internal resources for collecting the debts, therefore, it is necessary to intervene with a third party.”
Many debt collection agencies have relationships with credit reference agencies giving them leverage to collect. Of course, there is a cost, typically between 1% and 5% of the sum, depending on circumstances.
Under the Late Payment of Commercial Debts (Interest) Act 1998, a company can charge interest to its debtors on late payments. Many collectors have solicitors associated with them and can handle litigation if it is necessary to sue for a debt.
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It should not be seen as a sign of weakness to pass on a debt to a collection agency. See it as an extension of your business. A new business should be equally as professional as a large company in pursuing outstanding debts.
Whether you have a manual accounts system or a computerised one, it is important to prioritise debts, chasing the largest debts first. It is important to establish strong relationships with major customers to ensure prompt payment.
The longer a debt is outstanding, the less likely it is to be paid.
Some customers will pay promptly while others are habitual late payers.