How can you collect money from slow paying customers without blowing up at them and losing your cool? Here are some things I’ve learned during my 35+ years of working with customers to obtain payment.
- Be nice, but also firm. Threaten gently. Let the client know the consequences of not paying on time or not sending a payment at all. Working in the terms “my collections agency” or “my lawyer” early on is a great way to light fires, which is not the best practice. Again, you have to be polite and gentle because being too defensive or aggressive can cause a fight, and a client is more likely to fight you on everything if you aren’t polite. At the same time, don’t be a pushover. Be reasonable with time limits, but let the client know that you are prepared to call in outside help if he or she cannot produce the payment. Keeping the client abreast of options and consequences allows him or her to understand the severity of the situation.
- Offer non-paying clients a payment plan. This serves as an alternative method to show the customer you are willing to compromise in order to get paid. I remind the client that we held up our end of the agreement and produced the work they requested, and would “appreciate” if they could do the same. I learned early on that just because you have payment terms of “net 30 days” does not mean people will pay you in 30 days. You have to call them, send them a new invoice and/or proof of delivery, and you frequently have to call them again. It is difficult being an amiable supplier one day and a tough-talking credit collector two months later.
- Stop giving credit to anyone who asks. Most companies do have credit cards. If you are selling something that is being resold, or providing a regular service, you probably need to extend credit to be competitive. For a small company with a limited staff, this will add one more burden that is easy to neglect, especially when you are hungry for sales. The only thing worse is spending a lot of time “trying” to collect money. An experienced business owner knows that the job is not done when the product is shipped or the service delivered, it’s when you get paid and the check clears the bank.
- Other Easy Payment Options. Let them know that they can call you to make a payment over the phone with a credit card or debit card. This is a good option. Provide them with your website address if you have a feature that will allow them to pay their account online. Check by phone is also more being used more often now. Customers can fax or e-mail a copy of their check to you which you can process online through a secured website. In most cases you will receive the funds within 24-48 hours.
- Build a good relationship. Communicate immediately with a past due customer via an invoice copy and a computer generated message. Follow this up with a phone call. Creating a good relationship with the account payable person is very beneficial. Get to know your customer’s accounts payable team personally. If they like you, it is possible you will get paid first. Keep detailed collections notes of all promises made and follow up strongly if there ever is a broken promise.
- Listen. Having a plan prior to making a collection call is crucial. Remember that the person is probably embarrassed, stressed, and will likely become defensive when you ask him or her to pay. Being prepared for this will put you ahead of the game. A little patience and understanding goes a long way. When customers are explaining to you why they have not paid or cannot pay, keep quiet and listen. No matter how much you want to interrupt, give them a chance to explain. Sometimes they will calm down just because you listened to them and they were able to vent. When they are done, address the problem and offer a solution—or a couple, if you can.
Collecting past due accounts is not for the faint of heart. There are people who are short of money, people who just don’t like to pay, and people who are going broke. It is not always easy to tell the difference. There are people who will not pay unless you keep calling them. They most likely have a long list of creditors beyond you that they are not paying. The creditor who engages them the most will probably be the one that gets paid first. In this case, patience is not a virtue, it is a liability. In some cases, it is not worth doing business with them. But it can be worth it. Don’t give up on those people who pay slowly. Keep reminding them of their obligation and find a way to make it simple for them to pay up. Be patient to a point, but don’t let them slide!
© Copyright 2011 by Jim Sobeck. All rights reserved. This information may be reproduced as long as full credit is given to the author.