Most small businesses extend credit to their customers rather than collecting the payment at the point of sale. Still, they suffer from delayed payments. Often, the amount eventually has to be written off as bad debt since the payment is never received.
To avoid that, you must draft a strong debt collection strategy even before you kick-start the functioning. Bloomberg says 8 out of 10 businesses fail and the major is that they run out of cash.
I am sure you don’t want to be in a pack of 80%. Thus, I have enlisted 5 tips to help you build a strong debt collection policy that will ensure non-interrupted cash flow and business’ growth:
1. Set clear terms and payment deadlines
Establish clear terms and conditions of payment right from the beginning of operations. Make sure all your customers are aware of it.
It’s always wise to have a written debt collection policy in place. If necessary, don’t hesitate to take help from debt collectors to verify these details. Debt collection agencies like Cedars Business Service always put their people first and welcome all your queries open heartedly. You can also inhibit the set of rules and regulations at the back of the invoice or mail it along with the invoice to ensure that it doesn’t go unnoticed. When both parties have willingly agreed to a particular date for completing the transaction, it is hard to miss the payment.
2. Send frequent payment reminders
Unpaid invoices start to pile up when the customer is simply avoiding to make the payment. But in some cases, it is possible that they have genuinely forgotten about it. To avoid this, set up a policy of sending routine reminders to all your customers regarding the due date.
You can set up an automated system of sending reminders. This will save the time you spend on drafting the reminders and also ensure that a consistent pattern of sending out reminders is followed. If the customer is constantly seeing your messages about the payment, the probability of non-payment reduces.
Even if the customer misses the date, send them periodic reminders about how their payment is overdue.
3. Reward timely payments
Every business, irrespective of the scale of operations, survive on finance. Late payment or non-payment disrupt your cash flow putting the entire business in jeopardy. Considering that you are still a small business and other aspects also demand your attention, it becomes very difficult to chase the debtors until they make the payments.
You can try offering some incentives to customers who pay their dues before the deadlines, it can be in the form of a discount on the total value, shopping vouchers or a concession in the next purchase. This will encourage your customers to pay on time and avail of the rewards.
4. Keep your efforts short and professional
As a small business owner, you are in a place to show compassion to your customers and develop more human-relations. However, compassion is one thing, getting personal is another. Don’t dig in for details about ‘Why they haven’t paid?’ and keep the conversation more business.
Be professional and concise when contacting defaulters. Let them know that you are willing to give them some time to complete the payment but don’t ask unnecessary questions or encourage detailed explanations. Walk the thin line of professionalism and compassion. There’s a risk on either sides.
Don’t undertake any measures that can appear as harassment to the customer or you might be charged with a lawsuit for breaking debt collection laws. Whenever you call them, be specific about the purpose but keep your tone in check. You don’t want to come out rude and put future operations at risk. Since customers are also wondering why you are calling them. So keep your tone in check.
Note: Know what an honest customer is wondering when contacted by a debt collector in case of an unpaid invoice, here.
5. Take help from a collection agency
If you are facing constant losses due to overdue payments, the best course of action you can take is to contact a professional debt collection agency for assistance.
There are times when you are exhausted from sending constant reminders but the excuses for non-payment don’t seem to end. That’s exactly when you know, it’s time to call a debt collection agency. They will charge you a certain amount of fee but you will most likely get the majority of the payment you are owed.
Enlisting an agency’s help will also save you a lot of time. Instead of spending hours of your productive time, chasing defaulters, you can hand things over to the professionals like cedars business services and channelize your energy for the growth of your business.Small businesses have a limited supply of cash due to which delayed payments lead to their downfall. To avoid your business from meeting such a fate, make sure that you follow the above tips.