Menu

You Must Remind Your Customers

Home > Money With Melanie > Business Development

18 / Jan / 2010

Early in December, I received a phone call from one of my suppliers. She was wondering why I had paid my October invoice but not the September invoice. I said to her that we had no record of receiving the invoice and we had not received any statement from her company.  She said that her company did not send statements. Surprisingly, a number of companies feel that this is an opportunity for saving. The advantage of sending statements is that it forces you to be very systematic about your debt collection. Once you have set up your software program and ordered your stationery, statements are easy to print and very easy to post. They still offer the most cost effective method of collecting your money.

It is very important that your company has a procedure for collecting money when the account first becomes overdue. If you print statements it is a simple procedure to send a statement to these customers. To make the statement more effective, you should include a sticker on the statement. For accounts that are only just overdue you should tell your customer that the account is overdue and you would like to be paid now. Try and do this in a friendly way because at this stage in the collection process, you must give your customers the benefit of the doubt. Just assume they lost your invoice or simply forgot to pay you by the due date.

If your company does not send statements, the danger is that you will do the same as what my supplier did, i.e. do nothing until the account became long overdue. It takes discipline to collect your money quickly and efficiently. A number of small businesses do fall into the trap of doing nothing. This will save you money in the short term. In fact, some customers will pay you provided they have your invoice. Others will not. Delay means one of two things. Firstly, you will be paid later, often much later. Secondly, you will increase the likelihood of bad debts.

I understand that not all businesses send statements. There are still several options available to collect your money quickly.

The least preferred method is the telephone. Some credit managers use the telephone as their only means of collection. This would be a mistake for two reasons. Firstly, it is expensive if you have a large list of customers who pay on credit. Secondly, it does nothing to increase future business.

Let me explain. If you have 1,000 customers who have failed to pay their account by the due date, it would be a difficult job to ring all of these. Three things would need to happen. Firstly, you cannot call all of them at the same time. Secondly, to avoid substantial delays in telephoning your list of overdue customers, you would need to hire several people to do this job adequately. Thirdly, you must allow for several unsuccessful calls. Some of your customers will be away, sick, in meetings or simply away from their desk.

This is the first big problem with the telephone. Once you have committed to collecting your money in this way, normally you would persist in this method of collection until the bill is paid or legal action is required. Once the first call is unsuccessful, you need to schedule another call. This may be in ten minutes time, in the afternoon, the next day, next week or even next month. It takes a great deal of organisation and time to collect your money solely by the telephone.

The second big problem with the telephone is that it can offend some people. Be warned; some of your customers will be annoyed by receiving a collection call from your business when the account is just a couple of days overdue. I know I would be frustrated. For all you know, this customer might be very reliable and just on this one occasion, your account was overlooked. This is where the gentle reminder works best. It is confronting to speak on the phone to those insisting you pay their bill immediately.

The telephone has a big part to play in collection of overdue accounts. It is my view that it is more effective later in the collection process. In marketing, the telephone will get you a higher response than direct mail. The same applies for collection. The telephone will help you collect your money more quickly than if you were to mail a statement. However, there is simply no need to use this method so early in the collection process. Do not measure your collection success solely by how quickly your money is collected. Also, take into account, the cost involved in collection and the amount of repeat business your company enjoys.

There are other options available to you if your company does not send statements. Next time I will explore these.

SmallBIZTips, Ian Renton of Australian Credit Stationers

Share: