Prevent overdue invoices in the first place
Make sure your payment terms are clear and in writing.
Make cash sales a preference. Create incentives for payment in advance.
Set up direct debit systems for recurring payments and strongly encourage clients to use them.
Tell customers up front that a late fee is assessed on overdue invoices. Then follow through.
Send reminders on unpaid invoices before they are due. If your payment terms are Net 21, a week before it’s due send the customer a friendly reminder that they haven’t paid. Remind them that they’re risking a late fee.
Don’t let it languish
If the invoice has 30-day terms, start follow-up on Day 31. Don’t dither about “giving them time” to get the cheque in the mail. They had 30 days to do that.
Be polite. After all, the missed payment might be an honest mistake. Even if it was deliberate, you can be tough without being mean. Getting a call from a debt collector naturally puts people on the defensive. No matter how they respond to you asking for the money (which is rightfully yours, remember), keep your cool and don’t say anything your grandma would disapprove of. Being polite can make them more willing to cooperate, and will make it easier for you to sleep at night.
But be relentless. You’re being polite, not merciful. Expect to hear your share of sob stories that may or may not be true. You know who else is going to be in tough financial straits? You, if people don’t pay you what you’re owed!
If you can, give customers in a legitimate bind the option to pay in installments. If their financial distress is real, you’re more likely to recover your money piecemeal than insisting they give you what they don’t have. Make sure the terms of any payment plan are clearly documented and agreed to in writing.
Before you reach out, make sure the debt hasn’t actually been paid. No one likes false accusations. If the customer responds to early outreach by paying the bill, send a message confirming receipt and thanking them.
Document everything. Before you reach out, have copies of contracts, invoices, and any other relevant documents at hand. Document the date, time, and manner of your outreach, what you said, and how the client responded.
Keep lines of communication open. The older the debt gets, the harder it becomes to collect. This is made harder still if the client has had no contact with your company for months.
Follow through on consequences
The earlier you can address the debt, the better. At some point, you have to get serious. Enforcing consequences might damage the client’s relationship with you. But if they are taking your products or services without payment, they’re probably a client you can live without should they take their business elsewhere.
If you said you would assess late fees, do it. Make sure accrued fees are added to late invoices.
Once a customer goes two months past due, break out an official-looking letter and send it in the mail. Make sure they’re taking it seriously by sending it registered post so you receive confirmation that the recipient signed for it.
Stop credit. No more product or services to a client with an outstanding debt until they settle the balance. Expect a clash with the sales team on this once, since it’s likely to hit a sour note in their relationship with the client. Soften that blow by letting sales reps know when one of their clients no longer qualifies for credit so they’re not hearing it for the first time from the client. Remind sales that the company doesn’t grow from signatures on the dotted line unless those signatures are backed up with money.
