BookkeepingSmall Business & Startups

Getting Paid Part 3: Working with Collections

By July 19, 2016 No Comments

working with collectionsWhen it comes time to escalate to collections, the best advice we give can be found on a somewhat cheeky yet truthful World War II poster: Keep calm and carry on. After all, you’ve already worked through your follow-up protocol and documented each and every conversation (or lack thereof) had with your customer. You’ve been the nice guy, and you’ve dipped your toes into being the bad guy. But unfortunately, your strongly worded emails haven’t lit a fire under your customer, and they’ve been uncommunicative for 90 days. As if that wasn’t frustrating enough, now comes the really hard part, and the part that very few want to participate in: collections. With 5.2% of overdue invoices still unpaid after 90 days and 2.7% written off as uncollectable, it’s definitely an issue all businesses face. Sending a customer to collections isn’t an easy thing for us or any company for that matter, but with our help and your promise to continue calmly, you’ll rock it like a pro.

Working with a debt collector isn’t something that anyone wants to do, but it’s a necessary evil of being a business owner, and there are things that you can be prepared for from the get go. First things first: make sure you have a policy in place for determining when it’s time to send someone to a collection agency and keep it a part of your routine. If you have a policy in place, you’re less likely to make a call for collection based on emotions or judgement, and instead will simply be following the protocols you put in place. Getting this set-up from the beginning is a major part of warding off potential problems down the road including cash flow. Studies show that uncollectable receivables remain a significant issue threatening cash flow, and while 2.7% might seem like a small number, imagine if you had 0% unpaid. That should always be the goal.

Another potential issue you might run into include things like misinformation or even simple email address errors. The first time someone pays you, be sure you understand exactly who should be receiving the invoice and ensure you have their correct contact information. This might sound obvious, but to be sure that you’re covering your bases, implement a template email that not only welcomes your customer to your process, but also introduces them to your payables contact. In the email, include the types of payment you accept as well as confirm that you have the correct contact information. Not only does this make for an impressive first impression, but it gives you the  opportunity to nip any potential issues in the bud and even avoid debt collection altogether. Sending a canned email with your very first invoice might not be an original idea, but we like to think of it as a light bulb moment we get to share with you.

Since a lot of your customers will pay you like clockwork, your payables contact will almost immediately notice when something shifts and there’s a change in normal behavior. This should be a red flag that something is up. Instead of wondering what the problem is, address it head on. We like to send an email to our contacts explaining the behavior that we noticed (for example, a late payment when they always pay on time), and check-in on them. Use some of your similar friendly language from your follow-up protocol and phrase it in such a way that you really are just checking-in. This is non-threatening and a slam dunk example of quality customer service. Along these same lines, look for payments that might be out of sequence. This implies that either an invoice wasn’t received or that they’re disputing it. Another canned email takes care of this easily. Again, by approaching it head-on, you’re avoiding collections.

Unfortunately, sometimes, it’s not as easy as an abnormal behavior or an error in information, and this is where true collections processes come into play. In fact, you might even hear the promise that a payment is coming or better yet, it’s already in the mail to you. Take good notes if this is a phone conversation or keep any email that implies that payment is coming your way. Documentation is key! Whatever it is, as a business, you have to remember that it’s imperative to hold customers accountable, and that’s where what we’ve dubbed our “broken promises” email comes in. Be matter of fact with what’s going on and use straight forward information & verbiage. Then, hit them with the fact that even though they promised to send payment, it hasn’t arrived. Essentially, call them out. They’re adults, and they can handle it.

At the end of the day, if you take payments seriously, so will your customers. Having a routine, established payment schedule and follow-up protocol will only showcase your brilliant customer service and attention to detail. Be intentional and have a natural way to escalate your communication that’s not threatening or odd. Your customers will know your expectations and will work hard to live up to them, and if they don’t, you’ve got a policy in place to protect your business and your bottom line.


How Often to InvoiceFollowing up on an Invoice