Knowing how to settle outstanding payments from clients is a must-have skill for every business owner. Read on as My Business discusses some of the most effective debt collection strategies for small businesses.
Having a solid debt management strategy is imperative for businesses who want to survive and thrive in their respective industries—unpaid products and services can negatively impact the business’ overall financial outlook if left unsolved.
Debt restructuring and management can be very frustrating especially if the business has clients who aren’t very prudent when paying for products and services. This makes debt restructuring important and explains why debt collection leads to a debt-free living for both parties.
Consider the following when developing a debt collection strategy:
- Put payment terms and conditions in writing
- Set clear payment expectations
- Don’t be afraid to remind customers to pay
- Allow customisable payment plans for customers
- Consider hiring a debt/credit card collection agency
Put payment terms and conditions in writing
Putting everything on paper is a practical and efficient way for businesses and individuals to make sure that nothing goes amiss especially when it comes to payment terms and conditions.
It pays if business owners are extra-detailed and include everything when outlining payment terms in contract agreements as this helps lessen the occurrence of outstanding debt from customers.
Businesses should also always include the payment terms and conditions on all bills and documents given to the customer. If a customer has an overdue payment with the business, they can send a collection notice without worrying about possibly breaching certain agreements.
Documenting customer payments is also important to keep business finances in check.
Set clear payment expectations
Drawing the line on payment expectations even before a customer avails of the business’ products and/or services makes it easier for customers to pay up. This is especially useful when avoiding customers who don’t pay simply because of confusions in payment processes and options within the business.
Before making any kind of transaction with a customer, business owners must ensure that customers understand payment policies and possible penalties in the event of a late payment.
Business owners may also opt to have customers sign a waiver ensuring that the customer understands their payment terms and conditions. Encourage customers to ask questions for clarification purposes as this lessens faulty payment processes in the future.
Don’t be afraid to remind customers to pay
One reason why businesses get swamped in unpaid invoices from customers is their refusal to constantly remind customers to make outstanding payments. When business owners notice that payments from customers are slowing down, this may be the time to remind customers to make payments.
Incorporating late fees into payments could also prevent defaults from happening.
However, if the due date for a specific payment passes despite reminders and late fees, business owners can choose to rebuild the customer with a new billing statement containing all outstanding fees that need to be paid for by the customer.
Business owners are also encouraged to schedule sending reminders on a regular basis to avoid becoming overbearing—further discouraging customers from paying up if done too much.
Allow customisable payment plans for customers
One advantage that small businesses owners have against large corporations is the opportunity to personally know their customers and their individual situations.
If business owners find out that some of their customers are unable to fulfill their outstanding payments due to personal reasons, they could consider introducing a number of payment options flexible enough to cater to the individual customer’s circumstance.
Instead of implementing a standard payment system, a series of payment solutions might be worth investing in the long run. Although it might take a lot of time and effort to develop alternative payment options, this is beneficial for customers in the long run—allowing potential customers to see the business as an entity who puts a premium on customer welfare.
Consider hiring a debt/credit card collection agency
When all else fails, hiring a debt or a credit card collection agency might be the easiest way for business owners to collect payment from customers. However, business owners should treat hiring a collection agency as their last resort—making customers pay their outstanding payments with as little amount of effort as possible is a collection agency’s primary goal, not yours.
If a business decides to hire a debt collection agency, a lot of things need to be considered.
Business owners should select a reputable agency. They can ensure the legitimacy of a credit collection agency by asking recommendations from other individuals and businesses and looking for agency reviews. Business owners must also be prepared to pay additional fees charged by the agency for their services.