Running a small business means that you constantly have a million things on your plate. Unfortunately, when one of these is dealing with a multitude of late payments, you may find yourself running around in a proverbial circle instead of moving in the forward trajectory you need for your business’s success. In this case, you have two choices: outsource collection or handle it on your own.
An Outside Party
When you don’t have time to handle financials yourself, you can outsource many of your operational duties to a full-service small business accounting agency. Capex CPA offers all of the services you need, including bookkeeping, financial statement generation, and even helping you write a business plan, which you can use to ensure that your business is operating according to your vision.
If you prefer someone full-time that can handle day-to-day transactions and, potentially, some administrative tasks, consider using an employee sourcing firm. Look for a recruiting agency that sorts through candidates and can vet your potential recruits based on the experience you need. Regardless of whether you choose direct hire or agency hire, make sure that you are upfront about their expected tasks, whether that’s tracking late payments, making daily outreach calls, or providing you with financial reports weekly or monthly.
Another, ideally last-resort, option is to begin pushing excessively late payments over to a collection agency. Keep in mind here, however, that a debt collection agency may take up to 50% of the money they collect. Experian also notes that this might hurt your customers' credit, which could damage your relationship with otherwise good customers, who may have fallen on hard times or simply missed the invoice.
DIY Collections
Should you choose to collect late payments on your own, it is those same relationships you want to keep intact. Even if you don’t necessarily mind losing one customer, don’t forget that they may wind up leaving a negative review, which can sway up to 86% of other consumers to hesitate to use your business. Here are a few tips on how to keep payments on track while also building and maintaining healthy professional relationships.
● Reward early payments. Rewarding early payments is one of the best ways to ensure that you get your money. One way to do this is to offer a small percentage off of their total balance. Before you do this, calculate your profit margin and the amount it would cost you to collect a late payment. You can use these numbers to decide on a total discount.
● Send a friendly reminder. People are busy, and, sometimes, late payments are simply a side-effect of being on the go. Send out a friendly reminder of payment due one week before the date, on the due date, and then at recurrent intervals once the payment is late. You can use a pre-scripted letter to ensure consistency. These emails should include a company name, contact information, a copy of their invoice, which should also show their balance and due dates. You can also make a special note of potential late fees and alternative payment methods, if applicable.
● Pick up the phone (and text). A few years ago, one of the best ways to communicate with your customers was to simply pick up the phone and give them a call. Not today. According to PC Magazine, the vast majority of your customers prefer text and are more likely to read these instead of answering the call.
● Offer payment plans. Finally, consider setting up your customers on installment payments. You can do this at the point of purchase, which ensures you at least get part of your money upfront. You can then require payment at intervals of your choice, which will have the added benefit to your customers by making a large purchase more affordable over time.
Collecting past due payment isn’t a fun job. But, someone has to do it. Whether you choose to outsource or DIY your collection endeavors, the above tips can help. Whatever you do, remember that attitude is everything, and you do not want to lose customers because of a potential payment misunderstanding.
Capex CPA Is one of Canada’s premier bookkeeping and accounting firms. For more information, dial 416.903.4040.
