If you are in the service business and are often in the situation of having outstanding receivables there may be struggles getting your money back from time to time. Sometimes, the money you lent to a borrower is returned later than expected, creating a negative cash flow which can be a stressful situation. When other businesses owe you money, your team should have a clear and defined process to follow for reaching out and trying to collect. But if they have to wait days for a response, and sometimes wait all that time without getting a response, the time can stack up to work against you.
If a payment isn’t made well after the due date, you then have to consider whether or not to take the matter to court, contact a collections professional, or drop it and take the loss. Going through this process can be just as much of a drain on your time and finances as actually losing the money you lent, so it’s important to develop a strong internal collections process.
How To Create A Better Internal Collection Process
The good news is that late payers don’t necessarily mean you’ll never get paid. In our 60 years of experience, we have come across many clients who have had to deal with prolonged collections. While almost all of our clients have implemented great business practices and done their due diligence, there have often been less secure internal collections processes that result in overdue payments or long-standing debts. Having a solid internal collections process can significantly reduce the risk of your business losing money or compromising relationships with clients. Developing these processes can be complicated, but it’s not impossible. There are some general rules you would want to follow when it comes to setting up a good internal collections process.
Listed below are some methods you can incorporate to your current internal collections process which can help you in finding the solution to a problem before it becomes big.
1. Have a clear and well defined credit and collection policy:
One of the biggest issues that we have identified with most internal collection policies is the lack of a well defined credit and collection policy. Make sure that your policies are clear and easy to read. Your policy should spell out all the details regarding the process of credit lending and how your business collects past-due accounts. Having a well-defined and clear policy can come in handy especially if you decide to take matters to court.
2. Consistent invoices and statements:
Consistency is key to debt-collection. The more consistent you are with sending out invoices and statements, the better the chances are that the borrower will pay you back. Make sure you have your collection terms listed in your invoices and statements for this shows that you expect their payment on time, every time. Another way to optimize your internal-collections process is to send out a return sender envelope, should they opt to pay by cheque. By doing so, you prevent the borrower for having to go to the store for envelopes or stamps. The easier it is for your clients to pay, the more likely they are to do it.
3. Following up:
If a bill has not been paid within thirty days of the payment being due, the best thing to do is to issue a follow-up notice. If they still do not make the payment after the follow-up letter, you must issue past-due letters. Be sure to include the words “important” or the phrase “requires immediate attention” on the notice or envelope for it creates a stronger impact than just a regular past due notice. Creating a sense of urgency, can get a client to act on a faster and more immediate pace.
4. Third-Party Collectors:
Contacting a third-party can help alleviate the stress and tension one has to undertake when it comes to debt-collection. Make sure the third-party company you choose for debt-collections is highly experienced in debt-collection and legal matters, Looking for someone who is contingency-based could help since you wouldn’t have to shell out money immediately for their assistance.
Get Assistance For Internal Collections Now:
Debt-collection takes a toll not only on you and your business, but also your staff which has to make frequent calls, send out notices to try to get borrowers to pay back. If you think you have exhausted all your resources, contact us today to see how we can help.