Business owners are struggling in this tough economy and there is no greater headache than having to collect outstanding amounts. Dealing with bad debt is vital as late or unpaid invoices can have a direct impact on your cash flow, credit rating and the future of your business.
What You Can Do To Ensure Speedy Payments
These simple company policies should be followed to encourage fast payment of invoices:
- The easiest method to avoid bad debt is to make it your policy that clients should pay immediately on receiving the invoice. This is dependent on your industry and is sometimes not possible.
- Aim to send out the invoice immediately after the product or service is provided and, if possible, directly to the person who is in charge of making payments.
- Be sure to clearly indicate the payment due date on the invoice so that it can be paid as part of the customer’s billing cycle.
- Keep in contact with the customer and maintain a good working relationship. If they remember you fondly, they are more likely to pay you.
- Be sure that there is a solid company policy for dealing with payments and that all staff members stick to it.
Always be quick to follow up on outstanding invoices. The longer it is left undealt with, the lower your chances are of receiving payment. Research indicates that once an account is more than 30 days overdue, it becomes less likely that the amount will be paid.
How to Follow up on Bad Debt
- Sometimes all that is required is a friendly and professional phone call to make the customer aware of the overdue amount and to ask about the expected payment date.
- If the customer says that the cause of non-payment is a serious financial problem, you can discuss a payment plan that is more affordable. This method can put your invoice nearer to the top of the list and the customer often appreciates the effort made to accommodate them.
- It is important to put everything that is discussed in writing in case there are any disagreements at a later date.
- If you’ve tried to negotiate payment with the debtor, but cannot agree on the terms, you may need to call in a professional mediator or an attorney who can help you reach a mutually beneficially solution.
- If payment is still not forthcoming your attorneys can write a letter of demand, making it clear how much is owed and how overdue the account is. If you have given the debtor 30 days to pay and they have defaulted, the National Credit Act states that a maximum amount of 2% interest per month can be added. Alert the customer of the impending interest to be charged. This may spur them on to pay.
- If the above methods have failed and the account has slipped beyond 120 days, it may be time to take the matter further and institute legal proceedings against the debtor.
Attorneys are specialists in debt recovery and are able to assist you with the advice you need.