Do-it-Yourself Business Collection
Basic Techniques for Getting Paid On-time and In-full
Oct 12, 2009
The biggest problem companies face when it comes to business collections is waiting too long to take action. When the friendly approach doesn't produce results, a common mistake is to avoid confrontation by attempting to "just wait it out." Then when that doesn't work either, vendors often simply write off the relationship and send the bill to a collection agency.
But there are in-between business collection actions that can, and usually do, result in payment while at the same time keeping a company on good terms with its customers.
Being Reasonable About Business Collection
Realistically, companies shouldn't expect customers to pay every bill on time. It's not unreasonable, just unrealistic: business-to-business (B2B) vendors have to deal with payment processing cycles, and private customers often wait out grace periods before cutting checks.
It's not necessary to become confrontational or feel that clients are being disrespectful just because they haven't yet made payment. The simple fact is that most clients try to hold onto money for as long as possible.
Collection Methods Between "All" and "Nothing"
The key is to work "the middle ground" in business collections. Once a company gets comfortable with using follow-up promptings, the middle ground can become a solid foundation for taking a few extra, basic steps and maintaining good relationships.
The most important thing is to remain proactive in business collection efforts for as long as possible before resorting to becoming reactive.
The first step in to establish a clear, written agreement regarding payment. This includes payment deadlines and additional fees and/or interest in the event payment is late. Make sure the agreement conforms to the collection laws and statutes of the state where the contract is to be enforced legally.
The second step is to consistently send out bills on time. This is especially important for clients on payment schedules (most typically once a month). When bills arrive late, clients often let payments slide until the next cycle.
These two things alone will prevent most business collection issues from happening in the first place.
Business Collection Psychology
A common tactic used by companies in B2B situations is to schedule payments based on how long it historically takes for a vendor to ask to be paid. If the vendor historically waits 60 days to take the first step in beyond a reminder invoice, for example, the payables department often schedules payment to coincide with the first demand.
It's also important to note that the older a debt gets, the less likely it is to ever be paid. Time limits for business collection are also set by each state's statute, but the chances of an old bill every being satisfied die out long before the legal deadlines for collection.
It boils down to one very simple concept: if the bill isn't paid on time, the most powerful method available is to simply call and ask for payment. Wait about three to five days past the due date to allow the post office to deliver last-minute checks, but no longer.
When Reason Isn't Enough
If the friendly, middle ground approach doesn't work, it's time to send a no-nonsense, very firm demand letter. This often prompts the debtor to move the bill to the top of the heap because it's now become a stressful element. (Stress is the primary weapon of debt collectors, who understand that pain avoidance is a powerful motivator.)
It's only as a last resort that a company should pull out the "big guns" and go with a collection agency, or, if the bill is substantial, with filing a lawsuit.
The Best Way to Get Paid Faster
Most people like the good feeling that comes with paying their bills on time. Fortunately, they're in the vast majority, even in tough economic times.
The best way to get paid faster is to improve business collection systems to accommodate reasonable people, and to replace clients who refuse to reciprocate professional courtesy- especially when it has been earned.
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