Collecting money is a process that many people have an emotional block with. They leave it too long to start and then go to a nuclear option too early in the collection process causing long term damage to business relationships.
Having been collecting money for a long time on behalf of clients I have developed five rules that will make the process a lot easier.
1 Have a process
It is a process and you need to have a process. Firstly issue the invoice promptly and set your payment terms realistically. Secondly, send out monthly statements. Thirdly have a first and second email reminder already prepared – keep a record of when these are sent out. Then its phone call time.
2 Don’t get emotional when your customer lies to you
Unfortunately most people will make commitments that they cannot or do not intend to keep when it comes to payments. It is best not to highlight this when following up as it can cause loss of face to the non-payer. A non-payer is looking for an excuse to not pay – having a reason to dislike you is a great way for them to justify non payments.
3 Always be polite and professional
By always being polite and professional you can avoid emotions becoming personal. The approach must be “I understand your cashflow difficulties but I have a business to run”. If managed correctly you can even build up a good relationship.
4 Don’t force your customer or yourself into a corner
Keep going back and forth until you are sure there is no possibility of collection without legal action. Once this threat is made then the next step, if the money is not paid, is legal action. This will almost certainly end any ongoing relationship.
5 Stay convinced that you will get your money back
This is a money collection process, not a negotiation. Some customers will use the collection process to try and renegotiate the purchase price. This is particularly so where it is an invoice for services. Stand firm – the time to negotiate price or scope was before the service was provided.
The way to approach debt collection is that it is a process. Set aside a time to put an hour or however much time you have into it each week. This time can be used to issue your invoices promptly, send statements and make calls.
When it comes to the ugly part – referring clients to a debt collection agent, realise it is the end of your relationship. You provided a good or service and your customer did not pay. It is like a theft. This is not the time to save money. This is not the time to hold back in the hope that this relationship may suddenly be saved. Lantern Business Management can refer you to a solicitor who does economical and efficient collections. There is no emotion involved and the debts are recovered quicker than a do-it-yourself action because when the customer gets the letter from a solicitor they see with clarity that the debt cannot be avoided. All the debt collection expenses are recoverable from the client.
In summary, the less emotion involved in collections the better. That is why it may be better to outsource it. Lantern Business Management has been working with clients for years to ensure there debtors are up to date and that business relationships are maintained.