Friday, September 4, 2015

Tips for Collecting on Account Receivables

Too often small businesses find themselves walking a margin tightrope when they have over-extended credit to their clients, their current income does not meet their payable, and they are left with slow pay or no pay clients.  Small business owners are left to wear many different hats, "collection agent" is not one of the more popular ones and this job often gets put to the side. Over time, these overdue invoices continue to accrue leaving many small businesses owners with the challenge of recovering what they can from their aging accounts receivables which can be particularly difficult to collect on.
Fortunately, by following a few simple tips small business owners can work to decrease these account receivables early on and improve their chance of recovering their slow and no pay accounts throughout the process.  

Tip #1: Have a Process in Place
Handling all of your accounts on a case-by-case basis can be time-consuming and costly. It’s much more effective and efficient to have a straightforward plan that you use for every client who becomes delinquent on his payments. Have a set schedule for your aging accounts and separate contacts and demands for payment into stages. For example, start your contact at day 30 with a payment reminder then slowly escalate from there to "second notice", warning of collection agency referral, possible harm to credit, final demand and then actual referral to an outside collection agency or attorney.

Tip #2: Get a Deposit
 Make it a policy to collect an upfront deposit before you provide your product or service.  You never know when a client is going to suddenly stop paying on an owed debt and even clients who seem respectable and trustworthy can sometimes let you down. By following this policy of collecting an upfront deposit you will condition the client to understand the value of your services and to respect the fact that there is a cost to your services. Co-Pays for medical services are a great example as many practices have made it a clear policy to require at least a partial payment for the services provided at the time of service.

Tip #3: Obtain Credit Information
When accepting a new client, make it a practice to have them fill out an information sheet along with a signature sheet with your credit policy.  Once completed, review the credit application to ensure that all the information is complete including important items like work information, current phone numbers, and secondary contacts.  Keep your credit policy and responsibility sheets updated by occasionally reviewing them with your attorney for compliance and validation measures.

Tip #4: Keep Your Cool

Sometimes this last tip can be the hardest to put into practice but you absolutely must. Always be polite and professional when communicating with clients, even with the most dishonest or overdue ones!  Remember, there are laws in place to protect clients from harassment or other unfair debt collection practices and if you lose your cool it’s easy to violate one of these laws. Also, in a world where potential clients make decisions from online reviews, don't give the "bad apples" reason to easily damage your reputation.

Therefore, avoid taking a client's apathy and avoidance to pay personally.  Instead, let the processes you have set in place take the next steps in the collection process so you can spend your time and energy focusing on those paying clients!

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