Collecting past due payments
Collecting late/past due payments can be a cost intensive, time-consuming and frankly disappointing process. Many organizations struggle to collect past due payments because of the complexity of “classical” collection methods. Fact is, the collection process doesn’t have to be such big of a deal if you manage to create a slick workflow or find the right partner to manage it for you. The following article will give you some advice on how to create an effective strategy for collecting past due payments.
A collection strategy includes all measures your organization takes in order to assure full customer payments for the provided services or goods. The collection process is a set of coordinated, appropriate, and timely activities intended to convert receivables into liquid assets as quickly and efficiently as possible, while at the same time maintaining the goodwill of the client in case of future transactions (see
Verify Data -> Collection strategy should be integrated into your
customer lifecycle managent
. For both B2C and B2B relationships it is important, that you have valid, updated contact data. On the one hand, you will use this data to provide a great service throughout the entire customer lifecycle. On the other hand, valid and current information guarantees that your messages but also your invoices reach their recipient on time and each time. Being able to prove, that your customer has received the invoice can be very helpful, in case a payment is late and the customer is trying to find excuses for the delay.
Monitor progress -> Keep track of your clients and make sure, that you can communicate with them through more than one channels. If your policy is to keep as few data as possible, make sure the data set you have available is correct and up to date. The goal here is not to spy on your customers, but to be able to contact them as quick as possible in case of a liability:
Set up payment management rules -> A working collection strategy needs clear internal and external rules about the settlement period and the processing flow of customer payments.
Point out the payment conditions in the service contract or purchase agreement. Make sure, that your customer understands what consequences they would be facing in case of delay. Make them agree to these conditions before providing your products or services.
As a preventive measure, you might also consider avoiding
extended payment terms
. Get to know the legislation and your rights and set up rules about the maximum settlement period for B2B and B2C customers. The time to settle shouldn’t extend more than 14 days in the B2C sector and 30-40 days in the B2B sector.
from Europe show, that payment practices haven’t improved significantly in the past few years, especially in the B2B sector. Even if the
European Late Payment Directive
allows 60 days for the settlement of payments in B2B relationships, this timeframe shouldn’t be taken as a standard. This is a term that can be negotiated with customers. If you have an existing contract that extends beyond 30 days, consider offering a discount for faster payment. Don’t extend credit or terms unless you’ve verified that a customer is in a position to repay.
Create a dunning procedure to remind your customers of the delayed payment. Set a clear due date in the payment reminder and inform the customer about the consequences of not paying on time.
Get a professional partner -> The easiest way to assure efficient receivables management for your organization is to outsource the full process to a professional collection agency. such agencies will be able to analyze your workflows and your customers and create a collection strategy for you. You can outsource the full process including the initial generation of the invoice. This option assures, that the process will run fluently: there will be fewer communication brakes, no continuous back and forth with the datasets, more cost- and time-efficiency.
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