All businesses, regardless of their size, encounter customers who can’t or won’t pay their debts. Customers failing to pay within a specified time can cause serious cash-flow problems for your business as well as avoidable financial stress. But what can your business do in this situation? We have put together a list of actions and strategies you can employ to recover a debt.
Require Upfront Payment
Requiring upfront payment is the easiest and most reliable method to ensure that you get paid for your products and services. This not only helps your cash flow but saves you time chasing customers for payment. While this previously was seen as unusual in many industries, upfront payments are becoming increasingly common.
Credit Checks
If you decide to use credit accounts for your customers, all new customers should undergo a credit check. Although there are several online service providers who can provide you with credit checking services, it’s ultimately up to your business to decide whether to accept a new customer. Remember, not all sales are a good sale, and you may be better off refusing to supply/service a customer you feel may be a credit risk.
Have An Agreement in Place
Before providing your new customers with any products, or perform any services, you should discuss your prices, service fees and payment requirements. The easiest way to do this is to have your Terms and Conditions (T&Cs) in one accessible document that contains the following information about your business:
- Company details;
- When the T&Cs apply;
- What your credit terms are e.g. 30 days; and
- What will happen if they don’t pay on time.
If your business is online, then your customers should agree to your T&Cs each time they purchase a good or service from you.
Follow Up On Overdue Amounts
It is easy to overlook reminder notices, but a person on the phone is a little harder to ignore. While you cannot harass, coerce or mislead your customers, you can communicate with them to secure money owed to you. Over the phone, you can immediately provide your customer with up-to-date information about their account, request payment for the overdue amount as well as explain the consequences of non-payment. Non-payment is usually a sign that your customer has either forgotten or is having cash flow issues. You may consider making an alternative payment arrangement or a settlement proposal to ensure the customer pays the debt, and maintain your business relationship.
The Last Resort
If, after these steps, the customer still owes you money, then you can engage a lawyer to recover the debt. The value of debt and prospects for success will ultimately determine how you proceed. If it is a minor debt, the costs of pursuing legal action may outweigh the money owed. Especially if engaging a lawyer will sever your business relationship.
Questions about debt recovery? Get in touch.