Top 10 Ways to Improve Collections

By Ron Cash
Transworld Systems

It’s a problem faced by virtually every business: How to deal with customers that pay their bills late, or do not pay at all. Accounts not paid within terms can adversely impact the cash flow of a business. A clearly defined and carefully communicated, yet diplomatic, payment policy may help avoid difficult collection situations.

These 10 simple steps can dramatically improve your cash flow and reduce bad debt:

1. Have a defined credit policy. Clearly define in writing to each customer your payment terms. If customers are not informed that accounts are to be paid on time, chances are they’ll pay late or may not pay at all. Invoice promptly and send statements regularly.
2. Be consistent in your billing. If your business doesn’t have a systematic invoicing and billing system, get one. Customers won’t pay if they’re not billed or reminded in a timely manner. This situation occurs often in smaller or newer businesses that don’t have enough staff to handle invoicing and billing.
3. Use ‘Address Service Requested.’ One of the most difficult collection problems is tracking down a customer who has moved without providing a new address. The U.S. Postal Service offers a solution. Any statement or correspondence sent from a business should have the words “Address Service Requested” printed or stamped on the envelope, just below the return address in the top left corner. If your correspondence goes to a customer that has moved, the Post Office will attempt to locate a change of address for that person and, if successful, will send your office Form #3547 with the correct address and charge you a small fee. This helps you keep address files up to date.
4. Contact overdue accounts more frequently. No law says your business can contact a customer only once a month. Contacting late payers every 10-14 days will enable your staff to diplomatically remind the customer of your terms of payment and also identify any potential problems with your product or service.
5. Use your aging sheet, not your feelings. Many businesses have let an account age beyond the point of ever being collected because someone felt the customer would pay eventually. The truth is, if your business isn’t being paid, someone else probably is. Stick to your business’s systematic plan of following up and it will be apparent who intends to pay and who does not. Appropriate action can and should be taken once you know where your customer stands.
6. Train your staff. Your accounts receivable or collections staff may benefit from customer service training because, in effect, they “sell” your customers on the idea that your business expects to be paid on time. Make sure your office staff is trained to not only bring the account current, but to maintain good will.
7. Admit and correct any mistakes on your part. Sometimes customers don’t pay because they think there has been a billing error. If that’s the case, quickly admit and correct it.
8. Follow your state’s collection laws. Make sure you know what you can and cannot do. In Michigan, collection calls can only be made between 8 a.m. and 9 p.m., and the use of postcards to communicate about a debt is prohibited. Refer to the Michigan Collection Practices Act or the FDCPA for more information.
9. Use a third party earlier. If your business has systematically pursued a past-due account for 60 to 90 days from the due date and it still is not paid, you should get the message. After 90 days, a third party can motivate a customer to pay simply because the demand for payment is coming from someone other than your business. Ask your agency for an ‘early-out’ series of contacts for a low fixed-fee before the amount collected would be charged a percentage fee.  Transworld’s Accelerator and Profit Recovery services can deliver significant recovery. You should try to avoid paying a percentage to a collection agency, small claims court, or having to pay an attorney to collect, unless it is absolutely necessary.
10. Remember that not everybody collects every account. Even with a carefully designed and administered collection plan, there are a few accounts that will never be collected. Save your business time and money by identifying these accounts earlier in the process and use a licensed agency when needed.

Developing and implementing a sound collections policy is a vital part of running a successful business. Follow these 10 steps and watch your cash flow improve while retaining a good professional relationship with your customers.

Transworld Systems Inc. is an MBPA preferred vendor for collection services and accounts receivable management. Discounts are available on both the Accelerator and Profit Recovery programs. For more information, call Ron Cash at Transworld Systems at 877-766-2274 or email ron.cash@transworldsystems.com for details.