Late payments and bad debt are not only frustrating but they can impact your business and disrupt cash flow, causing undue pressure and financial hardship. Here are seven strategies that can increase your debt recovery and keep your cash flow moving in the right direction.
- Preliminary Credit Check: Before granting credit to a customer, whether for major purchases or repeat business, obtain credit references and a credit report. The more information you can gather on the front-end, the better your chance for recovery on the back-end.
- Proper Billing: If you want to get paid on time, bill on time. Submit invoices as soon as money is due. For long-term projects send interim billings. Invoices should include business name, address, phone number, line item descriptions and costs, total amount due and payment due date.
- Payment Incentives: Reward your customers for paying early and you will reduce late payments. To receive faster payment, offer customers a 1 – 3 percent discount for early payment.
- Early Intervention: Debt recovery efforts initiated early in the revenue cycle have the highest rate of return. Beyond 90 days, recovery rates decline significantly. Implement a recovery strategy that mitigates collection issues during the early stages. One way to do this is use debt collection software to automate the process without delay.
- First Stage: Sometimes it just takes a friendly reminder to get paid. If payment is not received by the invoice due date, send a reminder the next day. Don’t hesitate to call the customer. A phone call early on is 10 times more likely to get a payment response than a conventional written or email message.
- A Unified Approach: To maximize debt recovery, contract with an accounts receivable management company that offers both timed collection letters and phone calls to manage early stage collection efforts. Utilizing a national collection agency that can provide you with a unified system for accounts receivable management is often more cost-effective than moving accounts to different companies offering single services for collecting debts.
- Reputation Matters: When contracting with an outside collection agency, work with licensed companies affiliated with regulatory institutions such as the Association of Credit and Collection Professionals International (ACA). National associations and industry groups often demand professionalism from their members and keep them up to date on collection laws. A quality agency will reflect positively on your business and help you maintain valued relationships with your customers.
With a strategy in place for late payments, your business can spend less time on collections and more time on driving revenue.
Having an early recovery plan in place can mean fewer problems later on. For more information on putting a collection system in place, be sure to check out Optio Solutions, LLC for details on our debt collection strategies.