SCORE Blog

When dealing with customers in arrears, it’s important to follow the correct process to maintain customer relationships and ensure quick and early payment. Generally, the debt collection process begins with a softer approach in the early stages to stronger and more persistent tactics as you move through process. Follow these steps to ensure you don’t alienate your customers while getting the best results in debt recovery.

 

 

In the first and earliest stage, your customers’ debts might be between one and thirty days late. This might be due to an invoicing error, a misunderstanding, a cash flow problem, or simply that they forgot to pay their bill.  Starting with a softer approach increases your chances of recovering debts quickly, without jeopardizing your relationship with your customers.

 

Before doing anything, first check that invoices were sent, and received. A brief follow-up call, letter or email, which can be seen as providing good customer service, helps keep communication friendly and open. Find out if your clients have any questions or concerns, and gently remind them of when their bill is due to be paid.  If your customer’s bill is past due, it’s important to remain friendly and professional to find out why they haven’t paid you. This allows you to present a solution, such as payment terms, that will help them resolve this issue.

 

 

If your customers still haven’t paid after 31 days, and up to 60 days later, it may be time to get a little more serious. Here’s where you can become somewhat more firm in your communications, perhaps mentioning late payment penalties and interest charged, while still aiming to maintain goodwill with your clients.

 

If your customers are past due 61 days, it is time to escalate their accounts. Increase the pressure with more emails, letters and phone calls and notify them of increased fees and interest according to your accounts receivables policy. During this stage, you may consider turning over these accounts to your collections agency.

 

Before doing so, it is helpful to contact your customers, discuss the steps your company has taken to recover this debt, and give them a final deadline to pay (usually within 30 days). Warn them that if they do not pay by this date, you will turn over their account to a collections agency and a report will be made to the credit bureau. Should payment not be made, their account is then closed and you can then lodge a default with a credit bureau/reporting agency. This can prevent your former customers from borrowing money for anything between five to seven years.  

 

 

After 90 days of your customers’ debt being in arrears, your company should move to the final stage in the process, stage 4. This is when you charge off the debt to a debt collector, a company that becomes responsible for collecting on these accounts. This may end up in your former clients being sued in court or even filing for bankruptcy.  

 

If you follow the steps listed above, your customers will be aware of, and understand, each stage in the process. This allows you to keep friendly and open relationships with customers who may have forgotten to pay or experienced a sudden setback – and improves your chances of recovering this debt.

 

SCORE helps businesses develop optimized, cost-effective and targeted collection activities that increase the value of your business and your return on investment. Contact us today on 647.309.1803 to get the conversation started.