Debt collections stinks. Having worked in a business office doing collections calls, I speak from experience (only six months’ worth—thank goodness). Calling people to ask for money is hardly fun, and effectively managing an accounts receivables system requires the right technology, hard work and the three p’s of business: Planning, Practicality, and Persistence.
Still, accounts receivables and debt collection are unavoidable for some businesses. Lawyers, consultants, architects, and other professionals offering specialized services have to work with clients on costs that accrue over time or that exceed reasonable one-time amounts. Cheeseburgers—easy to collect on. Building a house—not so much.
The trick to effective accounts receivables is setting up the right system and adopting effective practices that ensure you are actively (and often proactively) addressing those past due accounts. If you’re struggling with collecting on past due debts, adopting the following four qualities into your accounts receivables approach will work wonders.
Get a system.
A system makes all the difference. A good one utilizes well-trained employees and regular contact with the clients to keep bad debt to a minimum. From the start of a client relationship, clear expectations must be established—on both sides. From then on, if those expectations are not met, the client should receive initial contact within 14-30 days past due and then regularly until a payment or arrangement is established.
It sounds harsh, but if clients can’t cover anticipated costs, then they should not receive services. Look at it from a practical perspective: you will not be doing them any favors by allowing them to build up debts they cannot pay. Evaluating clients up front can prevent bad debt by culling the most risky of them before debt is accrued. Then, that effective system I mentioned before, which you will have already adopted (hint, hint), should take care of any clients who should fall behind.
The first commandment of reducing collections: ask and you shall receive. Regular contact is vital. Some assume that consumers will pay when they are able, but often, especially in this tight economy, consumers will wait until someone reaches out to them. Human nature requires prioritizing and while most people aspire to be honorable and pay their debts, sometimes those debts take a back seat to other concerns—and yes, I’m guilty of it too. However, a simple phone call will often produce results, at least reminding the client that the obligation has not been forgotten.
Make it easy.
The final and most effective tool in reducing collections is ease of use—i.e. technology. The internet along with the variety of gadgets available today make it easy for consumers to make payments at their leisure and in their preferred way. Equipping company websites to take payments for accounts receivables is just good sense. Many systems allow for payments to be exchanged via electronic transfers, ACH, or online payments. Many systems also allow for automated recurring payment schedules, email and text message invoicing. With so many options available, companies can ensure that their consumers can make payments at almost any time or place—which, of course, means fewer reasons or opportunities not to pay.
Although technology has a cost, the return by making client payments fast and easy far outweighs a small monthly fee. A current NTC Texas client was owed $9000 and his customer wouldn’t pay with a check; only a credit card. The business owner didn’t want to pay the processing fee. Seven months later he was still waiting for the $9000 and was having trouble with cash flow. He fit the adage penny wise, pound foolish but eventually chose technology and never turned back.
Adopting accounts receivables best practices will produce effective results and a better bottom-line, bringing businesses that other P they all know and love: Profit.