Tips for Better Debt Collection
How do I end up with so many bad debts and what can I do about it?
Debt collection is one of the most neglected tasks in business today.
A debt collection really begins as soon as your business accepts an order – or perhaps even earlier at the quoting or prospecting stage. Instead of only focusing on collecting “bad” or overdue debts, efficient debt collection is a means of completing the sale. After all, you haven’t made a sale until you have been paid.
The most effective means of preventing bad debt write off is early, consistent follow up.
Debt collection is recognised as being one of the most neglected areas of business. The time and cost involved in effective debt collection often deters businesses from setting up efficient procedures to address the issue. Other reasons for poor credit management include a general fear of damaging customer relationships, a heavy reliance on “handshake” deals and a general opinion that bad debts are unavoidable.
Debt Recoveries Australia can help you collect your debts faster and more efficiently and we can also help you establish an efficient debt collection system within your business.
Your debt collection system should include:
- Well-thought-out processes designed to speed up collecting money.
- Use and implementation of these processes.
- Understanding and support for the system in all relevant divisions of the business.
- Regular management reviews.
Once this system is in place, your referral rate to DRA will be less, you will save money and your cash flow will increase.
Benefits flowing from a good system will include:
- Collecting more money from customers faster, more often, with less cost and stress
- Improved cash flow.
- Avoiding future problems.
- Improving client goodwill.
- More efficient use of resources.
Any other tips?
Use an organised and efficient approach to debt collection. A systematic, controlled approach to receivable management is most effective. Establish a procedure for accounts receivable that is comprised of invoicing with set payment terms, a follow-up call and a call if the payment is late.
- Use an organised and efficient approach to debt collection. A systematic, controlled approach to receivable management is most effective. Establish a procedure for accounts receivable that is comprised of invoicing with set payment terms, a follow-up call and a call if the payment is late.
- Ensure that your employees are properly trained in managing and collecting receivables.
- Manage your receivables. Extending credit to another person or company involves risk. This risk is minimised as long as it is properly managed. Improperly handled receivables can get out of control. Some danger signals to watch for are:
- Slow payment or a change in payment habits
- Broken promises of payment
- Unreturned messages
- Postdated or NSF checks
- Unauthorised return of merchandise
- When extending credit, be certain the customer understands the terms and conditions.
- Adhere to the terms set forth initially. When you set terms, communicate them to the customer and then stick to them. State your terms and intentions with clarity and firmness. Develop a set of reasonable terms and conditions that are a part of the sales contract.
- Escalate your actions. If it is clear that the debtor will not pay, do not hesitate to escalate your actions. This can include pre-collection letters and demand notices through telephone collections and legal action.
- Keep your word. Every time that contact is made with the debtor during the collection process, push for a resolution (payment) and establish the next step (call back, repossession, legal action, etc.). Follow through on any further action that you inform the debtor you will be taking.
- Know when to get external help. Knowledge is your best defence against debt. Establish clear procedures and actions to be taken. Most importantly, recognise that outside help may be necessary under certain circumstances.