Whether you own a business or simply managing one, the experience of dealing with overdue invoices and unpaid accounts and overdue is something you have experienced at some juncture. Delayed payments can certainly take a toll on a business, regardless of how big or small it is. The experience is even more frustrating for the owner or manager, as he (or she) sees the business’s cash flow start to dry up due to uncollected dues while there are still payables pending for the business.
Businesses without adjusted capitals for potential losses are especially crippled in such situations because of how financially stagnant they can be until the due payments are received. If you have not faced this situation yet, you must understand what you need to overcome the challenge. Here are a few basic steps to better manage unpaid accounts:
Prevent overdue accounts from ever happening.
The best way to deal with overdue accounts is to avoid having them at all. There are many systemized collection processes available for you to use and ensure that your finances are protected through swift payments. Paying a little extra for professional collection services is more often than not worth your money. The stress relief that delegating collection tasks can give you and reducing outstanding accounts are more than enough to offset the money you invest in the service.
Hiring a professional collection agency to process late payments for your company will help you focus more on other facets of the business, too. For instance, you will have more time to focus on developing your products and services to meet customer demands. You can also use your energy to work on other business resources to add to your total cash flow.
However, not all businesses can afford to pay for additional services. Startups, in general, operate on a fixed budget with very little room for unnecessary expenses. In these cases, the following tips might better suit your business needs.
Ask Customers to Pay in Advance
There is nothing wrong with asking clients to pay you in advance. Ideally, advance payments are made in full to secure your services, but you can explore partial payment options if the customer prefers it. To encourage the behavior, you can even throw in a couple of discount coupons or promos as an added incentive for clients who will pay in advance.
Remember that when asking customers for advance payments, you are asking the client for a favor. Try to use a more pleasing approach and not sound demanding at all. If you can explain to the customer how he (or she) would benefit from making an advance payment, you are also doing good marketing because you tell the customers that you know what you are doing and that they can trust you with your offer.
Encourage questions from clients while negotiating to create a healthy environment where they can build trust with you and your business. Discuss all terms upfront to ensure your clients won’t be blindsided with certain agreements in the future.
Implement a Strict Collection Process
If you fail to convince customers to pay for your products or services in advance, you can opt to implement a strict collection process instead. Your process should include effective methods for contacting a client with payables to your business, the right approach to collect money from each customer, and a record of logs to show the progress you have made with each collection.
A good way to start this step is to look out for effective collection processes implemented by mortgage refinancing companies, auto loan businesses, and private lending institutions. Looking into how these businesses have successfully settled their collections will help your business achieve the same.
When collecting late payments, try to be as reasonable as you can. Although they might not be paying as they should, customers are still clients that you would want to keep for your business. Besides, you want to be able to collect at least part of the payment owed to you, and a customer is more likely to pay you back if you still have a good relationship with him (or her).
If the customer has no means to pay the amount due, you can work out options that can work better for his (or her) current finances. Try to retain a good professional relationship even with delinquent customers because it goes a long way towards customer loyalty and satisfaction. If you were nice enough to help out a customer in his (or her) time of need, you might receive good word-of-mouth advertising that can bring you more clients and increase your sales.