Recently, I have been writing about increasing sales, reinforcing branding, reducing costs, and other ways to survive a rough economic year. Another very important strategy to keep the cash flowing is debt collection, and how to make debtors pay.
Debt collection can literally make or break your business. Failing to follow up with debtors regularly could make you end up with zero in the bank. It’s a fact that the older a debt becomes, the harder it is to collect.
It’s vital that you create a process for dealing with debtors and stick with it. The more often you enforce this, the quicker clients learn to stay within your terms of trade.
Here are seven tips to avoid the debtor drama, and make debtors pay on your terms:
Accept plenty of payment methods
Way back in the early 2000’s when I started in business, just about all of my clients paid by cheque. Now, cheques would account for just 5% of our receivables. The majority of our clients pay by direct bank transfer, which is better for us: the money is available quicker, and there’s less risk of a bounced cheque.
We also have some clients who pay by credit card. Sure, we take a small hit on the fees, yet we find many clients are keen to pay by credit cards to solve their own short-term cashflow issues. Speak to your bank or find a payment gateway for safe credit card transactions.
The more payment methods you offer debtors, the less excuses they have to neglect paying.
Ask for a deposit up-front
I’ve always asked for a minimum 40% of the project total as a deposit before starting work on a project, and rarely does a client complain. Asking for a deposit up-front means that you’re establishing the client is serious and can pay their bills. If they’re unable to pay the deposit, how will they pay for the rest of the project?
Spell out payment terms clearly and regularly
Be sure to include your payment terms within your proposals, and that the due date is clearly marked on all invoices. You can really help set the expectations form both parties, by including this detail in your sales proposal clearly and in plain sight.
I know a person who even sends meeting requests as calendar reminders to their clients when they send the invoices. Be very clear with due dates — make the date as large and as bold as the total on your invoice.
Follow up overdue invoices immediately
The day after your invoice was due is the best time to send a polite, yet firm, email enquiring when they expect to pay, and if there’s any issue. Include a copy of the invoice as an attachment, and let them know you’ll call in a few days time if you don’t hear from them.
Set the tone carefully though; you want to sound helpful and genuinely concerned they may have misplaced the invoice, rather than threatening or angry.
A week later, if the payment is still yet to be received, call and ask them when they expect to pay. Your job is to make debtors pay, and using this method, you’re forcing the client to declare a date, which they’ll be less likely to break. Follow up with an email, confirming the date you expect to receive the payment.
Increase the debtor pressure
Close the cycle. As the debt becomes older, follow up more frequently. Become firmer with each communication, but never become angry or personal.
If you host the web site, consider turning their site off until payment is made, or hold back on code or any deliverables that you still have.
Offer repayment schedules
If the client is having genuine trouble paying you, call and discuss a workable payment plan. Of course, it’s preferable to have the entire balance in your bank instead, but it’s still better than receiving none of it. Be sure to put the schedule in writing, and follow up on every payment to ensure it’s adhered to.
Engage a good debt collector
If the worst happens, and two months later you’re still without payment, you may want to hand the matter to a debt collection agency. These agencies often take a small percentage of the overall debt if they can collect it, so at least you’ll receive the majority of the debt.
Good luck, and here’s hoping you make debtors pay without resorting to any of these debt chasing tactics!