Maintaining open and transparent communication with customers and suppliers is vital when developing successful business relationships.
But what is the best course of action when a good customer is late paying an invoice? Is it worth losing their business and future sales to recover the debt? Or should you abandon the debt altogether?
In the first instance if your debtor has not paid their invoice, you don’t want the trust and confidence you have built with a long-standing customer to diminish suddenly by acting abruptly. You also don’t want to immediately write off the debt to protect your relationship. Some may choose to abandon their debts because they believe it to be too costly to recover. However, it is rarely a wise choice to write-off the debt.
Here we look at some of the actions you can take if you find yourself in the difficult situation where a client or supplier owes you money, and how to manage your relationship with a debtor.
Ensure you invoice on time
The challenges faced by businesses in response to late payments are significantly heightened by difficult economic conditions. During COVID-19 and the ensuing recession, 40% of businesses saw worsening late payments, and insolvencies doubled. Insights from a 2022 late payment report, found that 87% of businesses had experienced late payment.
Invoicing on time should be a priority for any business; not only does it keep cashflow moving in your business but increases the chances of getting paid quickly. And should your client’s financial stability change, having your invoice on the ledger potentially means you’ll get paid before any lasting damage. Important to make sure your invoice is accurate and easy to understand, as queries equal a delay to payments.
If the client has exceeded the invoice due date, then make sure you follow up on the invoice immediately. Don’t be reluctant to call often to remind your client, however, remember to always remain courteous. Losing patience – even though late invoices are frustrating - never helps a situation.
Transparent but firm communication
Whilst your debtors should keep you in the loop regarding their finances – rather than sweeping it under the carpet – you should also be upfront, whilst being polite, and try to understand why they are late paying. Once you are sure that your client is being honest with you, then make sure to get a commitment out of them (a firm date and payment amount) as to when they will repay the debt.
Ensure you have a debt recovery procedure in place
Make sure you keep accurate records of agreements in writing, such as a date by which the debt must be repaid, if you have agreed to this. Then you can turn your focus to how the issue can be fixed, rather than focusing on the problem.
You may choose to offer your debtor options for paying back the debt, such as spreading payments across a period of time to make the outstanding debt more manageable or extending the terms at an agreed interest rate or an additional fee.
When should I consider recovering the debt?
If attempts at trying to settle the debt by your internal team has failed, the alternative two other options are to abandon the debt or make use of a professional debt collection agency.
Some business owners view collecting a debt as risky, time-consuming, and expensive. However very rarely is writing off a debt a good option. Therefore, the best course of action is to enlist the help of professionals in this area who can manage a business dispute in an ethical manner. A debt collection agency knows how to recover debts in a timely and diplomatic manner, saving hassle and stress for business owners.
Controlaccount’s debt collection methods are ethical, effective and transparent, with a focus on improving business cash flow, whilst preserving your customer relationships and reputation. Our services can be delivered on a no collect, no fee arrangement. You can contact one of our team for more information here.
FAQ - Pay a Debt
