A New Business Will Collapse Quickly Without Sound Collections
By Christopher J. Bachler
Some of your customers will be slow or even unwilling to pay. If you can’t get payment upfront, you’ll have to provide your product or service before you’re paid. That can be risky. But if you follow a sound collections plan, you can minimize bad debt and get paid most of the time.
Preliminaries
Most late payments are due to forgetfulness. Your initial follow-up should get quick results from slow customers. Since some customers may be suffering from “cash flow” problems, you’ll need to get right on top of them before other creditors do!
Minimize late payments by marking all invoices with clear due dates. To avoid confusion, keep billing separate from collections. You don’t want to mistakenly send overdue notices to good customers. Also send “thank-you” cards to customers following payment. It’s a good way to remind them that promptness is appreciated.
Your medium of choice should be regular mail since it is neither intrusive nor easy to miss. Enclose letters in envelopes marked “Urgent,” or “Immediate follow-up requested.” Collection letters should also be specific, referencing things purchased, transaction date, amount owed, and payment due date. Though cheaper and more convenient, postcard reminders advertise the debtor’s situation to others.
Send your first letter no later than 30 days after the payment due date. This letter should be short, direct, and cordial. Head it with FIRST NOTICE in bold letters, and simply state: “This is a reminder that your bill is currently overdue. If you have already sent payment, please excuse this letter.” Treat the matter delicately since many slightly late payers will pay and may still be good future customers.
Send your second letter 30 days later, with a slightly firmer reminder. “SECOND NOTICE…It is now 60 days since payment was due. Please send payment in the amount of ($___) immediately!” No need to be overly cordial because you’ve already allowed plenty of time and notice. You also don’t want people to think that you’re soft. Just don’t be too tough, since many at this stage will still pay. Moreover if the case ultimately goes to court, you’ll want the court to see you as a person who has been quite patient and reasonable.
The third letter should be sent 30 days after the second, and should be firmer because you’re now facing a problem. At this point, you should be more worried about collecting your money than losing the customer since such customers—like trouble—are better lost than found. Even if you collect from 90-day delinquents, you might not wish to do more business with them unless they are willing to pay upfront and in full by a certified cashier’s check.
Headline this letter with THIRD AND FINAL NOTICE. You might write: “This is our third and final notice concerning the money you owe (give details). If we do not receive your full payment within (time limit), we will be forced to…” Here you might choose to spell out whatever steps you plan to take. But if you do, you will be obligated to follow through.
You can back up your “snail mail” collection system with e-mail—possibly in-between letter notices. But don’t use this as a primary tool. Not only is e-mail easy to overlook, but it might also be accessed by others. In addition, you will need people’s prior consent to contact them be e-mail or be guilty of spamming.
While mail is a good place to start, it is also a relatively passive method that is easy for customers to ignore. You might also follow-up by phone—though you shouldn’t do so more than twice. You don’t want to be accused of harassment. Personal visits are best to avoid.
Third Parties
After 90 to 120 days, you might turn to a collection agency or an attorney. Third-party involvement tells debtors that the matter is serious and often gets results. Be mindful that collectors will either take a portion of the amount due or expect a flat fee. If the amount is small, they might not accept the assignment. Even if the job is accepted, there’s no guarantee that the collector will succeed.
You might ask your attorney to send a letter to the customer. These notices are often effective, because they suggest that the next stop is court. But if you promise to take the person to court, you will have to follow through. You won’t necessarily need an attorney. But you will need good documentation and lots of patience. You might even have to accept a partial award. HBM
Christopher J. Bachler is a 20+-year veteran business writer and editor, based in Drexel Hill, PA.
