I’m going to take a wild stab in the dark and assume that you did not start your business because you were excited about the idea of chasing down unpaid invoices. To make it a much less annoying process to collect, try these three strategies to get your billing back on track.
Unpaid invoices can be a huge drain on your time, energy and cashflow, putting your company at risk. These three methods will help you streamline the collections process, making it much less annoying in the process.
Avoid Unpaid Invoices
The best way to handle unpaid invoices is to avoid them in the first place. Although nothing is foolproof, taking basic steps, such as checking emails, websites, and phone numbers to confirm that a business is real and having new clients fill out a credit application can prevent you from working for companies that can’t, or won’t, pay. Another way to ensure that your invoices get paid is to make it easy for companies to pay you. Use an invoicing system that allows you to send invoices promptly and allows people to pay in a variety of ways (electronically, by credit card, by check, etc.). Make sure you keep good records. If your business runs on auto-renewals, send out notices in a timely manner. Having clear terms, both for deliverables and payments, in your contracts can also help avoid confusion and late payments.
When an invoice is even a day late, send a politely worded email reminding the customer of the due date. If you let due dates pass without comment, clients will assume they don’t matter to you. The email can be followed up by a phone call a week after the due date. It’s important that you be polite, but firm in any communication. You’ll want to communicate using more than one method. Emails are great for creating a paper trail. Phone calls can often be more effective at finding out why the invoice isn’t being paid.
If your contact at the client’s office is not responding, or cannot provide a reason as to why the invoice hasn’t been paid, move up the chain of command. Hopefully, before you began work with the client you had them fill out a credit application, which included phone numbers for people in accounts payable and leadership. If not, ask your contact to put you in touch with someone who can help. The request can be phrased as a favor to the contact, “I know the bill isn’t your fault, and you probably don’t want to deal with my phone calls, so why don’t I speak to accounting directly?”
Once you talk to someone in charge on the phone, you should have a better idea of why the invoice isn’t being paid and how you should proceed. Depending on the client, the amount owed, and the reason, you may decide to give the client more time to pay the invoice or a payment agreement. We discourage clients from agreeing to discount invoices. All too often the discount is extended in a way where it can’t be retracted even if they default. If this happens and then you send the invoice to collections, your collection agent will have a much harder time collecting the original amount owed.
Send it to Collections
If an invoice is 90 days or more overdue, it’s time to send it to collections. This may seem sudden, but after 90 days, the invoice already has a 25% chance of never being paid. If you haven’t been successful within 90 days, there is rarely a good reason to believe your internal team will be successful further down the road. The more time you delay in escalating, the lower the odds of ever collecting. If you believe a company is about to go out of business or into bankruptcy, you may wish to send it to collections even sooner.
Reputable commercial collection agencies will only charge you when they collect, so even though you won’t get the full amount of the invoice, it is probably more cost-effective than pursuing the invoice yourself.
No one, except me, goes into business because they want to spend time collecting on invoices. When a client owes you money it can leave both you and the client feeling uncomfortable. Having a clear, simple process for what to do when faced with an unpaid invoice can help make the experience easier.
Guest post courtesy of Dean Kaplan. Dean is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.