Most late payers don’t want to be bad payers
After sending thousands of emails and making thousands of phone calls, it probably won’t come as a surprise that the most common reason for late payment is your customer lacks the cash to pay right now. Offer them a workable payment plan and most times they’ll be back in your good books within a few weeks.
When does a good payer become a bad payer?
This is where a good accounts receivables specialist is worth every penny. Not only are they experts at coaxing your troublesome payers to lift their game, they also have excellent ‘bullshit detectors’ to know when your customer is acting in bad faith.
We typically know by the second or third phone call whether a customer genuinely wants to pay. That’s the benefit of having thousands collection calls under our belt – it gets much easier to spot the bad eggs and start a formal debt collection process earlier.
When should I use debt collection?
Statistically, the best time to send a customer to debt collection is before their account reaches 90 days past due.
Keep in mind if you gave them 30 day terms in the beginning, then they’ve already had use of your money for 120 days! So 90 days is ample time to follow a robust credit control process, leaving you with little doubt that debt collection is the appropriate next step.
Which debts should I send to debt collection?
Here are the key considerations for sending a debt to debt collection:
- Is the debt owing from the customer more than $500? Most debt collection agencies won’t consider collecting debts under this threshold.
- Is the debt disputed? Debt collection agencies cannot lodge a default against disputed debts, leaving legal action or the Small Claims Court your only remedies.
- Have you followed a good process? Have you sent email reminders and made some phone calls to try and resolve any issues and confirm the debt is not disputed? Is the customer aware that you’re taking further action that might affect their credit rating and cost them thousands in legal and collection fees?
- Can you on-charge collection and legal costs to your customer? Your terms of business should include a clause that allows you to pass on all collection and legal costs to your customer. If you don’t have this option then you might think twice about using a debt collection agency if you have to foot the bill.
Technology can help
Cloud-based receivables management software like Debtor Daddy makes it easy for any business to follow a great process and outsource parts of accounts receivables when the organisation does not have the expertise, time or resources to handle internally.
