Effective debt collection techniques are necessary for any business, regardless of the economic climate. Knowing how to get your customers to pay their past due debts on time will increase your cash flow. After all, running a business, you have your own debts to pay. Absent an adequate cash flow, you risk falling behind on your own obligations, which leads to problems with suppliers, and/or loss of easy credit terms with your bank or lender.
Learning how to master your debt collection techniques can mean the difference between surviving and thriving for your business.
Here are the top 3 debt collection techniques to improve your business cash flow:
1. Change Your Payment Terms
Be sure to state clearly on all your invoices and any provided quotes what your payment terms are. Many businesses permit 30-60 days before payment is due. Perhaps you should consider reducing the payment terms to 14 days, or 21 days.
Amending your terms of payment can mean the possibility of receiving your money sooner rather than later. It can also mean that an unpaid account becomes delinquent within a month. You are within your rights to start collection activities before more precious time has passed.
2. Written Statement Reminders & Follow Up Calls
Once an account becomes delinquent, you can send a reminder notice to the customer to encourage them to pay their bill. This needs to be worded gently, and carefully in your letter, since the laws regarding debt collection techniques are very specific. Sending written correspondence also means you now have a record of your attempts to collect the past due debt in case future issues come up.
You should also call the customer and remind them of their delinquent debt, and to establish an estimated time frame to effect payment. Again, be careful in your communications, choice of wording, as well as the timing of your call.
Under the Fair Debt Collection Practices Act (FDCPA), debtors are afforded certain protections. Make sure you follow these laws and guidelines, whichever methods of contact you choose.
3. Third Party Collection Agencies
Sometimes, in spite of all your efforts, some of your customers won’t pay their debts. In spite of the fact some of your customers might be experiencing financial setbacks, this doesn’t help your business if they’ve already received goods or services from you in good faith, and now are unable to pay the bill.