Small Business Debt Collection Strategies

  • A strong collection strategy helps you stabilize your cash flow and receive money from your customers without irritating them.
  • Debt collection strategies include reviewing your billing and invoicing processes, hiring accountants, and understanding your customers’ payment processes.
  • You should only hire a collection agency for debts that are 90 days past due from insensitive or resilient clients.
  • This article is for business owners who want to improve their debt collection processes.

In B2B business, there is always a risk that some customers will not pay their bills on time. Sometimes it’s because your customers have a lot of bills to pay within a certain deadline and forget about your bill. Other times, it’s because a client doesn’t have the money they thought they had to pay for your services. The good news is that you can reduce your number of unpaid bills with the debt collection strategies below.

The importance of a collection strategy

When you earn most or all of your money from B2B services, sometimes you provide your services before your customers have paid. Although common, this model is inherently risky because when a customer doesn’t pay their bill on time, it creates a gap in your cash flow. As a result, you will have less money to cover your expenses. A strong debt collection strategy decreases the frequency of these discrepancies.

Editor’s Note: Looking for the right collection agency for your business? Complete the questionnaire below to have our supplier partners contact you regarding your needs.

In addition, a good collection strategy facilitates the relationship between you and your customers. Because collection strategies involve explaining in detail what methods customers can use to pay you and when they should, they also make your customer’s life easier. For both this reason and for cash flow reasons, you should periodically reassess your collection strategy – you cannot fix issues until you identify them, and some issues may not be obvious at first. .

To remember : A well-planned debt collection strategy minimizes the risk of cash flow disruption and tends to increase customer satisfaction.

11 strategies to streamline your collection process

Try some, some, most, or all of these collection strategies to streamline your debt collection process.

1. Check your bills.

Sometimes non-paying customers haven’t paid yet just because your invoices don’t clearly show that payment is due within a certain number of days. You can minimize these slippages on your end by regularly reviewing your billing policy. This approach involves looking at how you create your invoices and making sure that each of the following is present:

  • An invoice date
  • Contact details (name, address, telephone number and e-mail address) of the obligee and the obligor
  • A unique invoice number or other identifier
  • Payment terms and times, including acceptable payment methods
  • A detailed list of services with unit price, quantity and total price for each item
  • Clear and obvious total invoice value

2. Check your billing policy.

You should be looking at not only your invoices, but also your invoice sending policy. If you bill your customers monthly but regularly run out of cash, change your policy to bi-monthly billing. Otherwise, if you typically send invoices on the last working day of the month, try sending them on the first day of the following month. This way, your customers who make payments early in the month are less likely to miss your bills.

3. Review your billing technology.

Your business may be using a Word or Excel template to generate invoices. This approach, while certain to ensure consistency, involves significant manual work that can introduce unnecessary human errors into your billing practices. Consider switching to billing technology to minimize these errors and save time.

Invoicing technology can also track customer interactions with invoices, automate the tracking of unpaid invoices, auto-populate invoice fields, and more. To learn more about billing app options like Square, Invoice2go, QuickBooks Online, and FreshBooks, read the Business News Daily guide on how to find the best billing software.

4. Review your billing communication protocol.

The way you deliver invoices to customers and follow up can affect how quickly you receive payment. Many businesses submit invoices via email or apps, then follow up on unpaid invoices with brief emails, but the email may not be suitable for more urgent debts. Establish an internal policy to sue debts more than 14 days late with phone calls, which debtors often find much harder to ignore than emails.

5. Make it easy for customers to pay.

Invoices should show the payment methods accepted by your business. However, just indicating your accepted payment methods does not in itself facilitate easy payments. For example, don’t just indicate that you accept payments through PayPal – include a clickable PayPal link that a customer can use to pay.

6. Immediately present your billing terms.

Whether you have a separate credit policy or standard billing terms, you should let all of your customers know about your billing protocol. This can include the signing by qualified customers of your credit policy agreement as part of the original contract, or adding legal text to your invoices that explains how you can proceed to collect unpaid debts.

7. Confirm the payment process for each customer.

It is one thing to file an invoice with your business contact at a certain company; it is quite another to file an invoice with the company’s accounting department. Sending invoices to your contact at a corporate client does not guarantee that your invoice will reach the accounting team, and an invoice delayed in accounting will be paid later. Your sales contact is often not your accountant, so ask your customers who to send invoices to.

8. Determine how to consistently deal with late customers.

It’s inevitable that at least one of your customers is regularly paying late. To manage these customers, you can expand your payment terms just to meet their needs, but stronger individualized collection strategies exist.

For example, if your late customer rarely responds to emails but is fairly responsive to phone calls, have your accounting team call that customer within a certain time frame after payment is due. Alternatively, if you’ve experienced payment delays through a specific payment method from that customer, offer them the option to change their payment method. These individualized collection strategies can get your customers to pay.

9. Be proactive about payments.

Instead of waiting for your payment due date (hopefully with payment), call the client a week before the due date to discuss your services. Ask if there are issues with your service that could cause the customer to delay payment. Repeat this call a week after the due date if the invoice has not been paid and write down any promises to pay your customer has made so that you can follow up properly. Stick to the phone, not email here, as phone calls are much harder to ignore.

10. Don’t do it yourself.

All too often, small business owners take on the burden of overseeing debt collection at the expense of their more direct business tasks, such as planning and providing services. If you have the budget, you should hire an accountant or bookkeeper, whether it’s an internal staff member or a third-party department.

An accountant or bookkeeper can oversee the billing and payment process from start to finish. It means creating and sending invoices, recording payments, etc. A dedicated financial expert is especially useful if your clients also have their own finance teams, as finance teams from different companies can better understand each other’s situation. Accountants can also help you with tax compliance and other regulatory needs.

11. Hire a debt collection agency.

When a customer’s debt goes unpaid, ignored, or resisted long enough, you may feel the need to turn to a debt collection agency. The self-employed and small businesses can hire debt collection agencies for a third party’s expertise in collecting debts from non-paying customers, but this is risky. For starters, it’s a sure-fire way to build bridges with the customer. It’s also quite expensive, with costs ranging from 25% to 50% of the debt pursued.

That said, sometimes hiring a collection agency is really the only option (besides hiring a debt collection lawyer). You’ll know this is the case if your debt is more than 90 days past due and other approaches, such as resending invoices with late fees or interest, have not resulted in a payment.

If you need to take the collection route, check out our collection agency reviews to find the best partner for your needs. You should also familiarize yourself with the Fair Debt Collection Practices Act to make sure that your agency is operating within the law and relieving you of all liability.

Between your own collection strategies and the assistance of third-party experts, your clients could pay soon enough. Just be patient, thoughtful, and tactful in the process.

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