How do you manage to collect unpaid debts?

Being in business is about selling a service or  a product in order to make a profit.  On paper it can look as though you are making a profit however your bank account could tell a very different story.

When sales are invoiced they are recorded in your accounts as income but if your customers buy on credit the money from those sales may not appear in your bank until 30, 60 or 90 days later.  So whilst the sale has been made you have not received any money for it.  If you have to wait more time to receive money from your customers than the time your suppliers give to you to pay your bills than you will very soon have a cash crisis.

Do you have a process for managing the credit you give to your customers?  Do you give every new customer credit automatically or do you check out their credit rating before you decide?  Many businesses now expect payment up front from new customers until they have established themselves as a regular customer although being an established customer is still no guarantee of timely payment.

If you do give your customers credit you should have a process for ensuring they meet your payment terms. Having a record of unpaid invoices either in paper format in an unpaid invoice file or by using accounting software which shows the due date will ensure you can easily track what is due to be paid and what is outstanding. Regularly check this so that you know who owes you money and how old the debt is.

Taking your eye of the ball will lead to late payments and time spent telephoning your customers to chase payment.  Customers who cannot pay use delaying tactics such as "the cheque is in the post", but with most businesses paying by internet banking these days there is no chance of a lost or late payment and it is more likely that the payment will not have been made at all.  As a business owner you must keep on top of this in order to keep your business going.

So what can you do if you find your customer is late paying you or even avoiding taking your calls?  Well you know your customer better than anyone and only you can decide how you want to progress.  Maybe the late payment is a one off and they kept you informed of their shortage of cash situation and when they plan to pay you.  Generally, though, customers who are struggling with their cash flow will ignore your polite requests for payment and will only respond when the debt is passed to a debt collector.

Whilst most business owners do not want to go down this route, either because they think they can sort out the situation themselves or because they don't want to pay someone else to do it, that is a false economy.

I have used a local debt collection agency in my own business, one of my clients used them to recover a foreign debt and two of my clients have used them this year when they suddenly became concerned about the financial status of their customers.  In every case it was the best decision as every debt was recovered promptly and in full.  

A debt collector will contact your customer and will be able to get through to someone at the highest level.  They will be able to do research on the company and will know the financial standing of the business.  They will agree acceptable payment terms with your customer in order for the debt to either be paid off in full or on a regular weekly basis.  They will keep in contact with your customer and ensure the payments are made as agreed.  As debt collectors are generally paid on commission they need to ensure that your customer makes payment so that they too are paid for their work.

Debt collectors are not aggressive but know how to manage the situation to get the best result.  They will do the job far better than you can and whilst it will cost you some of the outstanding debt it is far less stressful and time consuming than trying to do it yourself.