How to Collect Debts Fast and Improve your Accounts Receivable
Unless you are actually a debt collection expert like Debt Recoveries Australia, there is a good chance that you have quite a few higher priorities than managing your company’s accounts receivable. You might even delegate that task out to an assistant or employee without much thought.
However, when it comes to end of month and you have to show the dollars, all of a sudden the accounts receivable department becomes a top priority.
In order to prevent serious cash flow problems before they get started, here are 12 quick tips to collect debts fast and make sure your receivables continue flowing smoothly.
- Place Due Dates on Everything
Every invoice and statement that you send out to a client or debtor should contain the exact and up-to-date information about how much they owe you, when that amount is due, and when it will be considered late. We suggest 7 days since, with automated banking, this is a reasonable time period for most companies.
- Send Your Invoice at the Start
Usually, companies bill their customers after the goods/services have been provided. They then give 30 days to pay, then wait another 30 days before attempting to collect. Each week you wait for your money, the chances of recovering that money go down. Why not bill your customer upfront?
You should always get your invoices out as early as possible. This gives the client plenty of time to budget their payment, and it also increases your chances of getting paid sooner.
- Personal Touch
Find out who is in charge of Accounts Payable at your customer’s company and address your invoice to them. CC the CEO or CFO. This will ensure your invoice gets the attention it deserves. Then, if the Finance Manager or CFO does not reply/pay, you can then send your invoice directly to the CEO or Director for payment. Sending your invoice to a specific person is a nice personal touch that just might make a difference if that person has to make the tough choice on which bill to pay this week and which one to worry about next week.
- Keep Good Records
Knowledge is power, and the more you know about your debtors/customers, the more power you have. Learn as much as you can about everyone who works at every company you deal with and keep all that information in some type of CRM software. This will ensure that you have an alternate contact should your primary contact suddenly leave a specific company.
- Have a Plan in Place
You need to have a specific plan in place for how you expect to operate at every single step in the billing and collection process. This removes the need to make any decisions under the stress of a difficult collection, you are simply following the plan.
- Pick up the Phone
This is the job most Accounts Receivable staff really hate, however, if you are not getting a reply from your emails or texts, this is the most direct way of getting your money back. Your most likely point of contact with all of your clients and debtors is the telephone. When your billing and collection plan calls for you to place a phone call inquiring about a payment, it is vitally important that you actually make the call. Don’t put it off until tomorrow.
- Friendly yet Persistent
This is our catch-phrase here at Debt Recoveries Australia, “friendly yet persistent”. Our debtors know we will not give up easily. Chances are you won’t get through to the correct person on your first call, but keep trying. Have a reminder system in place so you can follow up each week with your phone calls, until the debt is paid.
- Have a Credit Management Policy in Place
If a customer falls behind in their payments, at some point you will have to decide when to stop doing new business with them until the old business is resolved. This decision is much easier if you make it in advance and include it in your billing and collection plan. Have a credit management policy in place. It should state exactly how long you should wait before you outsource to a debt collection agency ( we recommend no more than 30 days).
- Charge Interest and Late Fees
Yes, you are allowed to charge your customer for your recovery fees, including legal fees incurred, so long as they have agreed to these charges previously. Your terms should state that you will add your fees, charges, interest and/or legal fees after a certain time period. However, you are going to want to make sure that you are well within your legal right to do so before adding the charges. Please see this free terms template ( link to free terms ) or contact ADC Legal ( in Australia) so we can write your terms for you and ensure they are legally binding.
- Record Everything
In the event that you have to take a client or debtor to court, you will want to have a record of everything. Have a good accounts receivable software that captures everything, including emails and documents. We use Debtcol Software ( add a link to Debtcol). It keeps records of all documents, emails and conversations. It can be accessed by our customers and also our debtors, so full transparency is provided.
- Be Flexible
There will be situations where the client or debtor simply can’t live up to your agreement. You should have a contingency plan built into your billing and collection plan to allow for negotiations when no better alternatives are present. You can’t get blood out of a stone ( if I had a dollar!) so work with your debtor to see what they can afford to pay. Be prepared to accept installment and have an accounting software and staff that will allow for this and be able to administer all the installments payments.
- Outsource Fast to A Debt Collection Agent
If you have set your terms, done your follow ups and phone calls, then don’t hesitate to pull the trigger and turn the account over to a debt collection agency or to your litigation lawyer. Every day that goes by exponentially decreases the odds of your collection agency recovering the amount owed.
There is a good chance that you have already worked most of these ideas into your billing and collection plan in one form or another. However, take a closer look and make sure that you aren’t missing any of these components and that you are actually following your plan in the heat of the moment. That is the best way to ensure improvement in your accounts receivable department.
Call Us: +61 1300 799 511
|About the Author|
In 2002, Adam Stewart established Debt Recoveries Australia Pty Ltd, a debt collection agency specialising in the insurance claims industry.
Adam has worked in the fields of motor vehicle insurance and debt recovery for over 12 years, working with some of the largest insurance and debt recovery companies in Australia. Read more