It’s a clichéd phrase, this “Line in the Sand” stuff isn’t it? It says “Just stop, I’ve had enough”. Whether it’s an over excited puppy, an annoying colleague or even listening to your own internal critic, we all know there comes a time when we need to put a halt to things as they are.
But what about your delinquent customers? The ones who you always have to chase to get paid for your goods or services. How do you draw that line for them, especially at a time when sales are slow. Often during periods of economic uncertainty it’s far better to try and work with customers who are struggling than to just abandon them.
Here are a few tips to help that we’ve put together based on years of experience supporting clients through these issues:
Have a proper collection process in place:
One of the easy to remember tags for collections is “CONSISTENT, PERSISTENT, FOLLOW UP”. This is where an automated collection system can be a godsend. The best practices that we have seen include:
- On your invoices, nominate a specific date. “Date Payment Due” instead of “Payment due in 30 days”.
- Make contact with your slow paying customers in advance of the due date. Ask: “is there anything that would prevent payment being made?”.
- For smaller amounts (< $500) consider using text message reminders;
- Have and follow a defined credit policy. This should cover your collections process and include a path of automated steps.
- Include personal contact too – remember, customers are people, not faceless companies. A five-minute phone call can often find a solution that would take many backwards and forwards emails. Treat them fairly and firmly.
Find out why the account is not being paid:
- Is there a problem with the goods/services that you don’t know about?
- Was there a problem with delivery?
- Was the order only partly fulfilled or items missing?
- Is there a pricing issue?
- Is there an invoice issue? Wrong PO number? Incorrect spelling? Gone to the wrong department?
- Is there a cash flow issue? Is more time for payment required?
With responsibility for credit control, you are in a unique position to gather customer insight. You can identify barriers to payment and take action to address issues that require a fix from within the business. You can report on a myriad of issues and help improve “the way we do things around here.”
Goods not being delivered on time? Talk to dispatch to help resolve late deliveries. Faulty goods or product problems? Tell the factory or production that there are issues they need to know about. Customers being given unrealistic expectations? Time to chat to the Sales Team. Use your position of knowledge to bring together other units in the business to improve payments and customer experience. This in turn will help increase sales
Now, about that line in the sand…
If you follow some or all of the tips above, you will find that you can collect most overdue accounts. But what do you do when an account is still unpaid? Here is where that line comes into its own special place.
The line we are referring to is the line between customer service and protection of the asset.
If you look at the balance sheet of most businesses, you will find that the value of receivables can be one of the largest assets a business has. The way receivables are managed by a business is critical to its financial success.
In the early life of an outstanding debt, there is an emphasis on the service aspects of the transaction. Is everything okay with the product and the service? Are you satisfied with your customer experience? Is there anything else we can provide you with (copy of the invoice, proof of delivery etc).
As the debt ages there is a transition to Protection of the Asset. The question now becomes how can we protect this money that is owed to the business?
Think of this as the line in the sand. The line where a decision must be made between continuing to try and collect as a matter of good customer service and trying to collect as a matter of asset protection.
Quite simply, if that line is crossed then all bets are off. When you reach that point the tone of communication will change. We just want to be paid, the goodwill is gone and you are not a customer that we wish to do business with. Please pay us and go to someone else.
- If you don’t have a proper collection process, then it’s time to get one – there are solutions that can help you automate this so that it is predominantly set and forget.
- Find out why the account is not being paid and take steps to resolve the issues.
- Determine the stage in the collection process where the customer crosses over from being serviced to having control over your assets and property – and take action.
Here’s hoping you can keep your customers in line (no pun intended) with a clear, consistent collections process.
Natalie Ledlin is Solicitor Director at Ledlin Lawyers. For more information, contact Ledlin Lawyers at www.ledlinlawyers.com.au
Articles written by guest contributers are intended as general information and commentary. They should not be used or relied on in place of legal advice. Please seek formal advice on particular transactions, circumstances and matters related to any articles, blog posts or case studies posted on this website.
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