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Mountain States Commercial Credit Management – elevated credit and collection services since 1988. Call us to improve your cash flow.    800-457-8244

How to Collect Debt Without Losing Your Customer

businessmenFor commercial enterprises, customers are truly the lifeline of the business. Pleasing them and meeting (or even anticipating) their needs is what keeps your company thriving. So when a client pays later and later each month, or fails to pay at all, it can be very difficult to make the decision to send that account to collections.

What makes you hesitate to refer a delinquent account to collections, even after you’ve done all you can in-house? In a word, fear: Fear that you’ll lose the account entirely, that you’ll never receive payment, or that you’ll lose the customer’s goodwill.

But if you change the way you look at credit, those fears quickly disappear.

Credit is a privilege

Consider this: Bad debt devalues the money you are owed over time because of the time and effort you have to put into collecting it.

Thus, debts that are current retain their full value. But research shows:

  • At 3 months overdue payments are worth only 87 cents on the dollar
  • At 6 months overdue they are worth 64 cents on the dollar
  • At a year overdue they are worth 43 cents on the dollar
  • At 2 years overdue they are worth a depressing 9 cents on the dollar1

Clearly, bad debt creates a tremendous drag on your bottom line!

Get creative with collections

Some customer relationships that have soured over time because of late payments can, and should, be saved. Since most people actually do want to pay their debts and may just be prevented from doing so by temporary financial hardship, creative credit managers use a collections approach that can help the customer find a solution — thus salvaging the customer relationship.

Here are some tips you can use right now to create a more effective collections process with every customer.

  • Clearly define your terms. Ensure your customer understands the payment terms from the beginning of the relationship.
  • Regardless of when the bill is due to be paid, send invoices and payment reminders every 15 to 30 days to keep your company top of mind with the customer.
  • Stop providing goods or services at a certain point that you outline in your company policies, but first send the customer a letter stating that service will be discontinued unless you receive payment.
  • Be clear about your expectations when you speak to the debtor. Don’t be confrontational — that will quickly lose the customer’s goodwill — but do ask for a definite date when the payment will be made. After that date, if the payment has not been made, follow up.
  • If you’re able to work out alternative payment arrangements, by all means do so. That can help you retain your relationship with the customer and may even get you paid in full sooner because you understood it was a difficult time.

Know when to hold ‘em … and when to fold ‘em

Of course, it’s always good to remember that there is a difference between “slow pay” and “bad debt.” A slow pay customer can often become a good customer with a little creative nudging. But with a bad debt, it’s better to cut your losses and move on before the asset turns into a liability.

No customer is perfect, but a few late payments don’t automatically mean a bad debt! The way you handle slow payments now may mean a healthier customer relationship in the future.

1Source: CCAA

Not sure what to do about a particular account? We are always available to answer any questions or assist with a collection. Please call us at 800-457-8244, fax us at 303-806-5360, or send a request through our website.
 

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