DEBT COLLECTION STRATEGIES TO IMPROVE BUSINESS CASH FLOW

I am a self-employed graphic designer and recently I’ve been finding it increasingly tough to collect what I’m owed. Is there anything I can do to make debt collection easier?

Debt collection is not a pleasant task for any business owner. It costs time and money and can often be embarrassing and frustrating. However, continual late payments from customers will have a serious effect on your cash flow and could leave your business in a very uncertain position.

You need to be proactive about your debtors’ list and have a clear policy in place to deal with overdue payments. Set aside a regular time for debt collection and make sure you stick to this. Even an hour a week can make a significant difference.

Nobody likes picking up the phone to chase payments, but a telephone call to your debtors will be far more effective than an email or letter.  Identify the person responsible for paying the bills and make sure you speak to them. Before you make the call, review your customer files so you have all the account information to hand in case of a query.

Go into the call with a positive and friendly attitude, but make sure you remain firm and business-like throughout. Be prepared to listen to your customer and give them a chance to respond to what you’re saying. It may turn out that there has simply been a miscommunication rather than an unpaid debt.

If your debtor is insisting they can’t pay what’s owed, ask them how large a payment they will be able to make. You might also consider writing off a small part of the debt to secure payment of the rest, but this is a judgement call and something that can only be considered on a case-by-case basis.

Make sure you end the call with a specific commitment to pay a certain amount by a certain date. Tell your customer when you’ll be following up again and make sure you phone when you say you will. You should also write down the details of the call to help you monitor your debt collection process in future.

To prevent cash collection problems before they arise, you need to have a concrete credit policy in place. This should clearly state the terms and conditions of credit extended to your customers, as well as the treatment of overdue amounts. If appropriate, have new customers sign a copy of this policy before you start work.

You might also consider following up at an earlier stage. Once work is complete and the customer has received an invoice, give them a quick call to ensure they’re happy with your work, the invoice is correct and to confirm payment terms. Not only is this good customer service practice, it may help you reduce your list of aged debtors.

To manage your cash flow smoothly, you need to turn debtors into cash as quickly as possible, while still maintaining a positive relationship with your customers. Be diligent about reviewing your list of accounts receivable and don’t let your debts age too much. The longer they stay on your list, the less likely they are to be collected at all.