How to Recover Debt AND Keep Your Customers

By Rick Chisholm | September 26, 2016 | 0 Comment

Collecting your overdue debts can be challenging if you have customers who are too used to extending the credit terms a little too far. The dilemma is always, how to recover your hard-earned cash without destroying the relationship with your customer.

To become a ‘good’ creditor, you need to fully grasp the true Psychology of Debt. If you had a burst pipe at your home you need an emergency plumber to stop the gushing water from flooding your lounge room. When the plumber shows at your door to save the day, you are only too happy to repay their service with an immediate payment. Say the plumber doesn’t request payment on the day and sends the invoice later, they have just significantly lowered their chance of being paid.

See the psychology of debt is such that, the longer you wait before collecting payment, the less the value of your service is perceived by the recipient. Even if you were a lawyer who just rescued them from almost-certain jail time or a surgeon who saved their life, the longer you leave the debt un-collected, the less the value of your service appears to them.

The answer therefore is to set CLEAR expectations upfront and collect as FAST as possible. Here are some recommendations on how to be a ‘good’ creditor and collect your debts faster than ever:-

• Force payment upfront if possible within your industry.
• Encourage upfront payment with early payment discounts if credit terms are an expectation in your industry.
• Screen your customers carefully before giving credit terms. Use credit services such as VEDA to investigate the customer’s credit history before taking the risk on board.
• Set clear expectations upfront by stating CLEARLY and OFTEN what your payment terms are and when the due date of the payment is. Show it on preceding correspondence, on the letter of engagement and on the invoices and statements where applicable.
• Set customers up with direct debit arrangements so you are authorised to deduct your debt when it’s due.
• Limit your risk by collecting progress payments as the project advances. You will then have the opportunity to stop the progress if payment has not been forthcoming.
• Tighten your procedures around invoicing to avoid mistakes that may result in unclear or incorrect charges and therefore customer disputes.
• Do not be intimidated or embarrassed to call up and collect your debts. If you just can’t do it, find someone who enjoys doing this type of work and delegate the job to them.
• Start the follow up process BEFORE the invoice is due to ensure the customer is aware of the upcoming payment deadline.
• Have a clear procedure for follow ups, stating the action to be done at each milestone during the lifetime of the overdue debt.
• Promptly and punctually proceed with each action as outlined in your procedure every time without exception.
• Always start as the Good Guy/Gal to keep the relationship courteous.
• If you have to follow up more vigorously, blame someone else for following up for example ‘the accounts person’, factoring company or the bank manager.
• Get personal, ‘I have several suppliers to pay and can’t make the payment’ or if you want to go all the way ‘the kids miss out on xmas presents’.
• If the usual contact person is avoiding you or not achieving the results, call another person within their organisation to make more noise and trigger some internal commotion over the issue.
• Do ask the question why the bill is not being paid. There may very well be a valid reason either due to an error with the invoice or a dispute that needs to be resolved.
• When the customer says they can’t pay on a particular date, always ask for a specific commitment date for the payment. Don’t leave it as an open ‘maybe in the next couple of weeks’.
• Get the payment promises in writing where possible so there is no confusion on the customer’s commitments. A written promise is a renewed contract between you and your customer and is enforceable in a court if it ever goes that far.
• Take the payment in as many ways as possible to reduce the boundaries between you and your cash. Accept credit cards, Paypal, American Express or any other commonly used payment method to give the customer as many options as possible to pay you.
• Charge account keeping fees or late payment charges when the debt has gone beyond your accepted terms.
• Consider outsourcing the debt to a debt collection agency if your attempts have been unsuccessful. Weigh up your alternatives against future dealings with that customer as this step is often detrimental to the relationship
• Consider compromising on the debt amount to keep the customer for future transaction if there is a dispute even if you do not agree.
• Be approachable and personable throughout the process. No-one wants to be treated disrespectfully even if they haven’t paid their debts.
• Work with your client towards a payment plan if your client seems to genuinely have a cashflow deficiency. Smaller payments collected on a regular basis do eventually add up.
• Stop supply of product and/or services if the debt continues unpaid to ensure your risk is minimised.
• Do not take the matter personally or get emotional in handling the issue. It will only exacerbate the situation out of control and jeopardise the relationship.
• Do not take disproportionately severe actions too fast like passing to debt collectors and don’t threaten too early in the process so you don’t alienate the customer
• Consider not extending credit terms to that customer again even if you eventually collected your debt. Change the terms to upfront payment or progress payments to ensure you are not compromised again.

 

We hope these suggestions will be helpful in your endeavours to maximise your inflow of cash and minimise time and money wasted in collecting debts.

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