10 Tips to Collect Late Invoices Without Upsetting Customers
It would be wonderful if all customers paid their invoices on or before the due date. However, that is simply not the way things work. Any business running accounts receivable (AR) can expect some customers to pay late. Some people would never pay their bills if they didn’t receive any reminders.
Making those all-important collection calls is essential to maintaining a healthy cash flow. But you might be concerned that chasing a customer for payment will wreck the relationship you worked so hard to develop. However, you can get your invoices paid without upsetting customers if you approach the task correctly. Here are 10 tips to help you collect late invoices and stay on the right side of customers.
1. Be Clear About Payment Terms
The payment terms granted to customers form part of the contract of sales. Consequently, you have every right to expect those terms to be met. If those terms are not communicated to the customer, it can lead to misunderstandings and disputes.
It will make collections far more straightforward if payment terms are made clear at the point of sale and in subsequent communications. For example, display the terms on every sale invoice and customer statement, and reiterate those terms in any written collection correspondence.
2. Communicate Late Payment Procedures
Charging a customer late fees without prior notice is bound to cause friction. The same can be said for suspending an account without any warning. It would be better to communicate your overdue payment procedures at the outset and warn customers that these actions will be taken if payment is not forthcoming.
Overdue payment procedures can be included with the payment terms on relevant documents. You may never resort to these sanctions. Still, if they have been communicated beforehand, implementing measures such as late fees will cause only minor and short-lived damage to the customer relationship.
3. Separate Roles
It can be tricky chasing a customer for payment one minute and selling to them the next. So, if possible, avoid having the same person doing both tasks. Separating credit control and account management or sales might be challenging in a small business. But you could have the bookkeeper make the collection calls or outsource your accounts receivable management.
If your invoice is 30 or 60 overdue, you may want consider selling your accounts receivable through a process called invoice factoring. Business owners who turn to invoice factoring for immediate access to capital have found this a fast and easy solution to bridge the gap between invoice and payment. When you sell your invoices to a factoring company, they now collect payment from your customers for the invoices you factor alleviating one more administrative task.
4. Be Reasonable
A customer who pays regularly and reliably a few days after the due date will not cause a significant cash flow problem. It could simply be that your terms and the customer’s payment cycle do not synchronize. It is often best to let that slight delay go without triggering any collection actions in cases like these. However, if the payment slips outside the usual cycle, that might cause concern. This approach is simply a case of being reasonable about credit control. After all, you wouldn’t be pleased if one of your vendors cut off your supplies every month because your payment arrived a few days late.
5. Be Consistent
Credit control processes work best when implemented consistently. For example, sending customer statements on the last day of every month, a written reminder five days following that, and a second, more robust reminder five days later. It’s advisable to have a collections schedule detailing when each step will be taken. Suddenly deviating from that norm, for example, charging late fees earlier, will annoy customers.
6. Talk to Late-Paying Customers
Standard credit reminders and customer statements should be sent out routinely. However, once an account is significantly overdue, a telephone call is usually the best next step. Talking on the phone allows you to get the right message across and can be less aggressive than written warnings. It also provides an opportunity to maintain the relationship with the customer while still chasing the overdue account. However, if non-payment persists, it is advisable to send written notification of any further action that may be taken to recover the account.
7. Be Sure of Your Facts
One sure-fire way to annoy customers is to chase them for an invoice that isn’t due. Check your facts before picking up the phone or implementing any late payment processes. For example, check that the customer has not disputed the outstanding invoice or invoices. Check with the customer’s account manager to ensure there are no other reasons for non-payment. And make sure that your accounts receivable records are updated before you make any collection calls or send out any statements or reminders.
8. Talk to the Right People
It is inadvisable to pester senior management of a customer about a slightly overdue account. It would be better to make your first point of contact the accounts payable department of a large organization or the accountant or bookkeeper of a small business. However, suppose you are getting nowhere with the accounts staff. In that case, it would be best to escalate the issue to senior management. Sometimes, other people in the organization may have a personal stake in getting the account paid. If you supply raw materials, for example, the production manager may be able to get an outstanding account settled.
9. Build a Rapport
Your customers will be receiving collection calls from other companies. If a customer does have limited cash, they will be prioritizing vendor payments. However, being the most demanding or nastiest collections agent isn’t always the best way to get paid. Often, you will find that building a rapport with a customer’s accounting staff is a far more effective way of getting your payment to the top of the payment list.
10. Keep Your Cool
Chasing overdue accounts can be frustrating, especially when you know you are being fed excuses. Nevertheless, it is best not to lose your cool when making collection calls. If you get angry, you may overstep the mark and destroy the relationship with the customer. Remain professional, stick to your collections schedule, and be firm but polite in all your credit control contacts with customers.
The Bottom Line
If you approach them correctly, your customers will not be offended by collection calls. Indeed, robust credit control demonstrates a well-run company. Be consistent, clearly communicate your terms, and remain professional. Then, chasing outstanding accounts will not cause any significant issues with customers.
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Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
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Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.