Despite sound credit-risk policies and proactive accounts receivable management, there will be times when you need to take action to collect past-due debt. However, there is a right way and a wrong way to go about it. One way will enhance your chances of collecting what’s due while maintaining the customer relationship, while the other will severely hinder your chances. Here are six tips for how NOT to go about collecting from late-paying or non-paying customers.

❌ Wrong way #1: Be lenient with extending credit to get the sale. As long as you are strict with managing your accounts receivable, the odds of collecting your full payment are good.

✔️ Right way: Have a written credit policy and stick to it to manage your risk. Be consistent in extending credit and payment terms. The best way to avoid defaults is to perform due diligence before extending credit.

❌ Wrong way #2: Invoicing disputes are usually a tactic your customer uses to avoid paying in a timely manner.  Be emphatic in your assertion that the invoice is correct and late fees will be applied to any overdue payments.

✔️ Right way: Invoice disputes are often the result of vague or incorrect invoices. Use an invoice template with all necessary information to reduce errors. Often, there’s a simple misunderstanding. Listen to the customer to see whether there’s a simple solution. Keep detailed records in case you end up sending it to collections. Offer options such as electronic payments and automated payments to make it easier for customers to pay.

❌ Wrong way #3: Avoid communicating with late-paying customers. They will only give you excuses and try to talk you into relaxing the payment terms.

✔️ Right way: When a customer is late with a payment, call the person directly responsible for payments. Listen. They may be going through a difficult, but temporary, challenge. Some payment is better than none, so be friendly and firm, but also be willing to negotiate to save a valuable customer relationship.

❌ Wrong way #4: Use threatening phone calls and intimidating emails for late or non-paying customers

✔️ Right way: Be polite, but firm. Once you raise your voice, you’ve already lost your image and ability to communicate effectively.

❌ Wrong way #5: When an account is 30 days overdue, immediately start calling to demand payment.

✔️ Right way: Make a polite phone call as a reminder. When an account is 60 to 90 days overdue, send a properly worded demand letter, but really think about your message as these guidelines suggest.

❌ Wrong way #6: Stick to your payment terms even when your customer is going through difficulties. A deal is a deal and negotiation is simply a way for a customer to try to get out of a loan agreement.

✔️ Right way: Be understanding. Many things can cause a temporary financial challenge (e.g., pandemic). Do keep an eye on financial indicators so that you are more aware of how quickly they can recover. Most credit customers value their relationship with you and want to remain in good standing.

Sending an account to collections is never the desired option, but sometimes you have no other choice. One way to make it easier, besides NOT taking the above actions, is to hire a professional collection agency. It will save you time and effort, as well as possibly save an important business relationship.

Need help managing your commercial credit risk? MSCCM financial experts can assist you. Contact us today.