Debt collection has unfortunately become part of any business no matter its size or nature. When a few customers fail to send in their invoices on time, it is vital for the in-house finance department to be able to respond in an appropriate and effective manner. Knowing that positive cash flow is essential for a company’s well-being and growth, the Australian Competition and Consumer Commission has published guidelines for an effective debt collection process. In order to collect the receivables in a timely manner, we have put together some easy steps for you to follow when a customer’s payment is past due date.
Friendly reminder
Once a customer’s payment is overdue, try to get in contact via email or even try calling the company. A lot of times the reasons why the outstanding amount has not been paid on time are trivial and minor issues. It could be, that the customer put the money into the wrong bank account, used a wrong payment channel or has simply forgotten the due date. Sometimes it just needs a friendly reminder for the debtor to recognize his payment responsibilities. To speed up the payment process, attach your contact information and bank details as well as the overdue invoice to your email.
Follow-up payment reminder
On the occasion that the debt still remains unsettled after having gotten in contact with the customer, it is time to send another email as a follow-up reminder or pick up the phone again. The wording should be more direct as to communicate the urgency. However, you should keep in mind that the goal of such contact should be to maintain the debtor’s goodwill and encourage timely payment.
Final notice
Given the customer has still not paid in accordance with agreed upon terms or missed extended payment dates, your next email should be firm and contain all information on the outstanding debt, your request for immediate payment and maybe even the notice that if the debt will not get settled within a certain time period, you will hand the invoice over to a debt collection agency. It is important that such final notice does not hold empty threats as involving a professional might be more likely to get immediate results and furthermore take some stress off the own finance department.
Direct contact
Once you have sent your final notice and the customer has still not responded in terms of settling the payment it is advisable to pay the company a visit given the creditor is located in your area. If less intrusive means such as emails, letters and phone calls failed, a face-to-face contact might be appropriate and necessary. Communicating about the issue in person can sometimes help to solve the problem and might be beneficial for your future work relationship.
Letter of Demand
Issuing a Letter of Demand should be considered as last resort when all efforts to collect payment in a professional manner are exhausted. A Letter of Demand is issued after first and second reminder letters were not effective and the final demand for the debtor to pay the outstanding amount in order to avoid legal action. The Letter of Demand is a formal document and provides clear indication that legal action will be launched if the debt isn’t paid, hence one should be aware that writing it might damage the relationship with the customer.
Leaving all those steps to the in-house finance department can be a stressful and unrewarding task. Furthermore, the number of employees needed to chase such payments can hamper a business, as the team should be focusing on other areas of the business. This is why every business owner should consider hiring a debt collector to not only save time and human resources but to prevent the need from having to send out a Letter of Demand in the first place.
Read Also:
Privacy Obligations to the Debtor and Third Parties
Should You Speak To A Debtor Once They Have Been Handed To A Debt Collector?
