Any startup that provides services or product on credit will eventually encounter problems with customers paying on time. Young companies will focus on growth and gaining sales while overlooking accounts receivables as they continue to increase.
While increasing sales and focusing on gaining market share is essential to growing a new business, collecting the full amount of those sales will help ensure positive cash flow for a startup company.
Below we will cover a few simple tips that will help small businesses reduce late paying customers and have a plan of action when one does fall past due.
- Detailed Invoicing– When a customer agrees to hire your company to perform a service, go over the invoice with the customer before they sign it. Cover when the payment is due so the customer will have a clear understanding of payment expectations.
- Enforce Late Fees– Many companies will have threatened to charge late fees but do not enforce the fees when the time comes. When explaining the terms of the invoice, mention the late fee amount and what day it will be charged on. Bringing the potential fees up will set a clear understanding of what fees are to be expected when the payment is late.
- Customer Follow Up– After the service has been completed; follow up with your clients to ensure they are happen with the service you provided. After they have ensured they are satisfied, mention when the payment is due and leave the option open for them to pay over the phone if they would like. Many customers will allow you to run a credit card at that point or tell you a future day to run the payment on.
- Collection Efforts– Customers may still fall past due after invoicing them and following up. Continue to call or send payment letters to the customer in attempts to get them to pay on time. Furthermore, it is important to stay calm and professional while attempting to collect the payment. Be firm but kind as you communicate with the customer and try to collect the past due payment owed.
- Hire Collection Agency– Occasionally customers will simply have financial hardships that don’t allow them to pay a bill on time. It could months before they will be in good enough financial standing to starting paying down the debts owed. Employees may get tired of attempting to collect the debt and if they don’t have a full understanding of FDCPA then those collection efforts can put your business at risk legally.
Benefits of Using a Collection Agency
Most employees have zero experience in collecting debt and will find the task draining the energy and taking focus away from the normal day to day activities they perform that helps grow the business.
Many collection agencies for small businesses will gladly take on a new client even if the amount of money owed is not tremendously high.
Any reputable collection agency will work on a contingency rate, which means they only get paid when they are able to collect on a debtor successfully. If the agency is unable to collect any money owed, then the business owes them nothing.
This is the best solution for both parties as a small business who is owed money from past due customers does not want to invest more money into chasing after a delinquent customer. If a collection agency attempts to charge an upfront fee per account placed with them, continue searching as most agencies will work with no fee required and let the results they produce generate revenue.
Any money the collection agency recovers from the past due customers can be reinvested back into the business to help scale a new marketing campaign or simply just help meet payroll at the end of the month.
Collection agencies are able to successfully collect money from past due customers more efficiently due to access to tools such as skip tracing software which allows them to locate debtors who have moved, changed phone numbers, and generally have went into hiding. Once they get the debtor on the phone, they can negotiate payment plans quickly.
Debt collection is a challenging task that most regular employees of small businesses lack the skillset or desire to do. Outsourcing debt collection will help keep employees stress level lower and overall outlook of the job more optimistic.
Hopefully these tips will help any young company avoid past due customers in the future and give you a plan of action on what to do if a customer refuses to pay a bill on time.
About The Author
Luke McCann is the operator of CollectionAgencyMatch.com and has decades of experience in helping small businesses collect on accounts receivables.