Commercial debt collection is a complicated, sensitive and high-tech industry. I’ve been working in it my entire career, and am still learning new things daily.
But for business owners and Accounts Receivable Managers, collecting overdue accounts does not have to be rocket science. By leveraging a few expert hacks, you can collect on time consistently, with minimal grief.1) Use a Credit Application: Before granting credit, insist on a completed credit application. Check all references and listen to your spidey senses. If anything is fishy or indicates an uncomfortable risk factor, decline. Don’t take unnecessary chances.
2) Run Credit Reports: Dun & Bradstreet charges $175 for a Business Information Report, and for any significant B2B account, it’s a good investment. You’ll get risk indicators, the business’s Failure Score, Delinquency Score, Average Days Beyond Terms, liens, court judgments and a list of all Principals and Directors and banks. If the applicant has been sent to collections in the last 6 years, you’ll know it.
3) Verify ID: Especially with consumer accounts, get a copy of the applicant’s photo ID. Note any discrepancies in the name, address or other information from that in your application.
4) Finesse Your Contract: Smart businesses have iron-clad contracts, expertly written to protect against virtually every plausible scenario.
5) Get a Deposit: In some cases, this may be transaction-based, i.e. 30 to 50 percent of the purchase value. For subscriptions or recurring payments, the combined first and last payment amount are common.
6) Document Everything: Keep copies of all written communication including emails and chat transcripts, as well as delivery waybills, change orders and other documentation. Provide the customer with frequent updates, especially when anything unexpected arises. The party with the most complete record-keeping is always ahead.
7) Resolve Issues Promptly: when something goes wrong, do everything within reason to make it right. Most disputes arise out of the customer feeling dissatisfied or disappointed. Document all actions taken to resolve issues and deficiencies. The cost of resolving an issue usually pales in comparison to that of bad debt, litigation and reputation damage via negative online reviews.
8) Freeze Overdue Accounts Quickly: If a payment milestone is not met, stop work. Customer missed a subscription payment? Suspend service. Do it quickly and if you have taken the first and last payment in advance, you are unlikely to be burned.
9) Be a Squeaky Wheel: Every debtor has payment priorities, and when the money runs out it’s like a game of musical chairs. Suppliers with lower payment priority are the ones left dancing when the music stops. Insist on being top priority.
10) Call in the Experts: If a balance is outstanding and the customer is either unresponsive, resistant, or fails to meet a promised payment date, don’t hesitate. Submit the account to your collection agency.
Need help choosing a great collection agency partner? Download this free guide and learn the ins and outs to set yourself up for ongoing success. Contact me with any questions—it‘s always my pleasure to collaborate directly with members of Canada’s business community, sharing tips and strategy!