Collecting unpaid invoices is not easy and it’s important to have a standard process for collections, but different situations call for different tactics. Here are a few general types of non-paying customers that need to be handled differently and a few suggestions on how to work with them:
· Will Pay – need a reminder: Call or send a note to remind them.
· Will Pay – on our terms: Deal with it for now and let them pay you on their terms, but decide if the customer is worth the longer payment cycle in the future.
· Will Pay – when an issue is resolved: Fix it and follow up by asking for immediate payment once the issue is resolved.
· Can’t Pay: If they are truly unable to pay and are willing to negotiate then set up a win-win payment arrangement. If this is just one more stalling tactic treat them as a “won’t pay” customer.
· Won’t Pay: Be firm and consistent in collecting until your efforts hit a dead end, at which time turn the account over to collection.
· Can’t Find: Turn the customer over to professional collection.
Below is a more detailed explanation of these different types of customers and how you can become more effective in collecting unpaid invoices from them in the future: Will Pay – need a reminder: People get busy and bills pile up. Sometimes all a customer needs is a gentle reminder to get the ball rolling on payment. If this is the case with your customer, your first collection contact can be a call (for large balances) or a letter/email (for smaller ones) reminding the customer that their invoice or balance is past due and asking them to contact you if there are any problems or issues.
Will Pay – on our terms, not yours: Many companies, particularly large ones, routinely ignore the credit terms vendors put on their invoices and pay according to their own internal practices and processing cycles. You need to understand your customer’s payment process and set your expectations and follow-ups accordingly. For example, your invoice terms may be Net 30 but your customer tells you that they pay in 60 days. Plan your follow up calls and escalations based on expecting payment in 60 days. Continuing to ignore their policy and asking for payment ahead of their normal schedule could negatively affect your relationship with this customer and won’t help you get paid any faster anyways if they are set on Net 60. If waiting 60 days is a problem for your cash flow then you need to re-evaluate the relationship and your prices.
Will Pay – when an issue is resolved: There is a whole range of administrative issues that can hold up payment of an invoice. These include paperwork deficiencies (missing PO number or supporting documents), billing errors (incorrect pricing or quantity), shipping problems (shortages or damage) and general dissatisfaction with your product or service – as well as the possibility that they actually never received the invoice.
The sooner you identify and rectify the problem the sooner you will get paid. Don’t assume that your customer will take the initiative to bring the problem to your attention. Often they just set the invoice aside and wait for your call.
Can’t Pay: Some customers could be experiencing genuine cash flow problems. They have no issues with your product or service and understand that they are obligated to pay but tell you that they are unable to do so. If they are still in business – and therefore paying other bills — you need to make case that they should pay you. Convincing them to give you money instead of someone else is a form of selling so it is important to make frequent contacts using a variety of methods (phone, letter, email) and following a predetermined sequence. As an incentive you could offer to settle for less than full amount or set up a payment plan. Customers in genuine financial distress will appreciate your willingness to work with them and this could pay dividends for both parties in the future when things improve. However, if they are unresponsive you should put them on credit hold and stop selling to them so that they know you are serious and the problem doesn’t get worse.
Won’t Pay: These are the tough cases. You know they have the ability to pay, but they refuse to pay you. They ignore your repeated calls and letters, give you unfounded objections as reason for non-payment, and break promises — “the check is in the mail.” You need to escalate and get more intensive in your efforts. If your standard process is not effective you need to try a different strategy. Engage people within your company that have relationships, such as the sales rep for the account. Your senior management or business owner can make a call and present the case that you need to be paid from a fellow business owner. When a customer is giving you this run-around it’s time to seek professional help — turn them over to a third party collection agency or attorney. You should do this before the invoice is over 120 days old. Collection efforts are more effective if the debt is not too old. You will pay a fee to the agency if they are successful but 50% of something is better than 100% of nothing.
Can’t Find: This is trouble. Returned mail or a disconnected phone means that your customer has gone out of business or moved without informing you. If you can’t contact them you can’t collect from them. Leave skip tracing to the professionals and turn these customers over to a third party agency immediately. If the customer is nearby, drive by their location and see if the business is open or the residence looks lived in. There may be a notice posted with information that might be useful, such as a sign that says a business has moved to a new location.