Hi, my name is Adam Stewart, Debt Collection Expert and owner of Debt Recoveries Australia and ADC Legal-Litigation Lawyers.
Prevention is the best cure, as I always say to my clients. The best time to start collecting debts is before they even become overdue. Therefore, credit applications, guarantees, credit checks and initial invoicing are all extremely important. If you get these things right, you will minimise any overdue accounts receivable.
If you have done all these things and your customer still has not paid, it is important to know how to negotiate effectively with your customer.
If you are just calling them ad hoc, this may alienate them and put them off guard. I love systems and processes. Once your systems and processes are in place, your customers will come to love and respect you.
Here are some tips to help you improve the success of your collection efforts:
- If you have not contacted the customer since their bill became due, you should start with a reminder that they have not paid yet. I recommend Xero for invoicing. They have a built in auto-reminder that will email the outstanding invoice to your customer, as soon as it becomes overdue. It is possible they simply misplaced the invoice or forgot to pay, so you do not want to start with a phone call that maybe too confrontational for your customers. Sending the reminder email will help maintain goodwill with your customers. Furthermore, they will be more inclined to send a payment they have forgotten about in a timely manner if you provide a firm but respectful reminder before making accusations or assumptions.
- If they have not simply forgotten to pay the invoice, the most important step in negotiating a payment from your customer is to find out the reason they are not paying. By understanding the reasoning your customer has, you will be far better prepared to come up with a payment solution that will satisfy both sides.
- If you offer a payment option to the customer and they refuse it, require them to come up with a counter-offer. Even if their counter is not enough for both sides to agree on, it will send a message that you are taking the negotiation seriously and won’t let them walk all over you.
- Have a concrete minimum offer you will accept for any payment plan you pursue. If you create a payment plan with your customer, this minimum should be an amount they can realistically pay but is also substantial enough that it will not take years of payment to pay off the debt. If the customer’s offer is below this amount, immediately reject it. Even if you later end up agreeing to a payment option below your minimum, rejecting an offer below your minimum right away will send a clear message to the debtor and will force them to make another counter-offer.
- If a debtor or customer simply cannot afford to make any payments (because of bad business, injury, etc.), do not try to force them into payment plans or agreements they cannot make good on. Neither party benefits from entering into a payment plan that cannot be fulfilled, nor forcing one on your customers is unlikely to provide any benefit to your business. You will benefit more from giving the debtor a few months to try to get their finances in order before beginning a payment agreement.
If you are still unable to negotiate payment from a customer, it may be time to consider hiring a collection agency, such as our partner Debt Recoveries Australia. Once you have hit the brick wall, after all these five steps, we can then step in and take over the process for you. Sometimes it is simply the “third party effect” that gets payment, i.e. having a third party, other than you, following up the account, as it sends a strong message to your customer that you mean business and you want to be paid.
For more tips or help in credit control or accounts receivable, contact ADC Legal Litigation Lawyers at 1300 799 820. You may also email us at email@example.com or Skype at adclegal.