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Dealing with late payers

 

Cashflow is one of the biggest killers of small business. One of the major contributors to this is bad debtors – customers who have obtained goods or services from you but are late with their payment. Following are some tips to manage your debtors. 

Follow-ups/reminders

To remind customers of when to pay, you firstly need a system to remind you when payments are due. 

Most accounting software features Receivables Reports which list current debtors. Please reach out to Trumans if you are unsure of this function.

You can define your own periods and run reports for debts that are 30, 60 or 90 days overdue for example. This is handy as you will usually take differing action depending on how long a debt is overdue. For example, you may wish to send out a standard template letter reminder to debtors who are 30 days overdue, whereas you may wish to follow up 60-day debtors with a personalised telephone call, whereas 90-day debtors may need to be referred to a debt collection agency. Alternatively, a cost-effective, foolproof method is setting up auto-reminders in your Outlook calendar or other email platform. For those who do not use Outlook, you can use similar online email services such as Google Calendar. 

In terms of client reminders, those with a personal touch are often more effective. In this regard, phone calls or personal email messages are best as they personalise the issue and can often result in putting your debt ahead of others in the queue. By contrast, reminders sent in the mail containing standard paragraphs, are often more easily ignored. 

Often making a telephone call to your debtor is all it will take to get them to pay. You should always finish the call by obtaining the debtor’s commitment to make the payment. Make another follow up call if the amount is not paid on the promised date or, better still, undertake to pick up the cheque/cash from the debtor’s premises on the day promised. 

Always act professionally and courteously with follow-ups. It goes without saying that aggression, rudeness or calling outside business hours may not only delay payment but result in the loss of custom.

Letters of Demand

Broadly speaking, a Letter of Demand is a letter sent to the debtor client following your supply to them of your bookkeeping services. The letter advises the client of the amount owing and threatens legal action if the amount is not paid. A Letter of Demand may also be tendered as evidence in court as proof of your attempt to settle the matter. When sending a Letter of Demand, you should: 

  • Attach copies of prior invoices 
  • Provide a clear description of the goods/services provided 
  • Document previous attempts to obtain payment 
  • Provide payment details (e.g. bank account into which they can make the payment) ∙ Set a final deadline (usually within seven or 14 days of the date of the letter) 
  • Offer a compromise for a lesser amount (this is optional), and 
  • Do not make the letter appear as though it is a court document (this is illegal). 

Debt Collection Agency

If a client fails to respond to a Letter of Demand, you may wish to refer the debt to a debt collection agency. The use of debt collection agencies to recover outstanding debts should not be commenced without consideration to the economic viability of such action. Fees charged by these agencies can include direct costs incurred in the recovery action as well as a commission charged on the recovered debt. 

Employing the services of a debt collection agency does not necessarily mean the end of your relationship with the debtor. Good debt collection agencies are polite and professional and all are subject to codes of conduct which prohibit harassment. 

 

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