Cash flow is oxygen to business. When it gets suppressed, the consequences can be severe—even catastrophic.
That’s why one or two non-paying customers can be enough to keep a business owner awake at night. I’ve seen plenty of organizations fail because of bad debt that could have been collected by following these four breakthrough steps:
1. Honour Your End of the Deal
When payment does not arrive on time, put it upon yourself to sniff out the reason. Talk to the customer. If there is a hint of dissatisfaction at the other end, don’t let it be justification for further delays. Be proactive in addressing any deficiencies or failure to meet expectations, with clarity that doing so will trigger immediate payment as the account is already overdue. Take reasonable steps to resolve any issues promptly. Not only is it good business to set things right, you need to remove any barriers to immediate payment on an overdue account. At worst, addressing buyer claims early will tip the scales in your favour in the case of a dispute.
2. Emphasize the Buyer’s Commitment
Every sales agreement includes payment terms. You agreed to deliver the goods or service, and the customer committed to paying by a specific time. For some baffling reason, it seems a certain minority of people in business do make purchases and sign work orders without a clear plan for where the money will come from—or even intent to pay (think Donald Trump). Lacking the funds to pay is never a valid excuse, because your timely compensation was understood and agreed upon in advance.
3. Stand up for Your Business
Your company should take great pride in the product or service it provides, and feel justifiably entitled to insist on timely payment always. Humility is a virtue—except in managing receivables. If that entitlement needs bolstering, think of your own obligations to the banker, your employees, their dependents (not to mention your own) and the taxman. Then refer back to Point 2 above: your customer’s commitment to you. Go back to these things whenever looking at an overdue account in your Aging Receivables list. Then take action! Highly proactive Accounts Receivable managers almost always collect, even in tough times. When a debtor crashes and burns, it doesn’t take an economist to figure out what happens to the less proactive creditors. The meek get paid last—if ever.
4. Nurture Your Credibility
In business, credibility is among your most critical assets. Don’t undermine your brand by repeatedly warning of non-payment consequences and failing to deliver on them. When it comes to Accounts Receivable, the rule is the same as in sales: say what you’ll do and do as you said. Rather than making spontaneous judgment calls on when it’s time to escalate a given situation, implement a firm policy for when a file goes to your collection agency. Be clear in your reminders that all accounts surpassing a specific number of days overdue will be sent to collections. Be mindful of the statutes of limitations on debt collection where you operate—most provinces allow a scant two years before a debt is statute barred. You ought to collect long before that!
Remember that sending a file to your debt collection agency should never feel like a big deal. Businesses that manage Accounts Receivables with the greatest ongoing success have a simple, consistent process for doing so. Every use of it reinforces their credibility and educates their customers.
At MetCredit we have developed an easy, one-of-a-kind online debt collection system for loading one or many overdue accounts day or night. Once we’ve set you up, there’s no easier way to collect business debt.
If you have questions about using a collection agency, our online system, or about how my team and I protect your brand while doing our work, send us a note. And be sure to download my popular guide to choosing a collection agency in Canada with the link below.