How Collections Is A Core Part Of Your Business Bottom Line
The collection of receivables is crucial for your business to run smoothly and remain profitable. Without cash flow, you will not be able to pay your staff, develop new products, purchase supplies, and attend to other business expenses—the reason any business exists.
Regardless of the prevailing conditions, some clients will always fail to pay on time. However, if well managed, unpaid dues and bad debt can be avoided, and you can keep your cash flowing and business growing.
Most large corporations can whether bad debts, but small business owners depend on every payment to survive. Failing to collect your receivables on time can quickly lead to bankruptcy.
You Need To Keep Your Assets Moving
Keeping your assets flowing is essential, especially for a small business. You have limited capital, which means that every dollar counts. If your clients are not paying their invoices on time, your staff is probably not getting paid, your utilities are due, and customers that pay their dues are dissatisfied.
Collecting your payments will ensure your capital is available to run your business when needed.
To Grow Your Business
All small businesses need a flow of funds to grow, and failing to collect your dues will keep your business at the same level or worse off for years. Without money to invest in new equipment, rent more space, or hire more professionals; all your hard work will be in vain.
Most companies wait more than 90 days to collect their debt, which by then, most debtors decide to disregard. Ninety days is a long time to wait and see whether debtors will pay whilst you can get the cash you need to open a new branch. Long waits can also drag your business and morale down.
What Methods Can You Use To Collect Your Debt?
Agree To Take Cards and Checks
If you are a cash and carry business, most of your clients will pay via cash or mobile wallets, but due to economic challenges and other factors, not all customers will pay through these methods.
Therefore, it would help if you considered accepting credit cards and checks because the EFT and ACH client funds are transferrable for a small fee. You should also include instructions on how to use alternative modes of payment such as PayPal, cryptocurrency, checks, and others on your invoice.
Most businesses in the service industry use discounts to encourage clients to pay early. Including this discount for payments made within 30 days and a reduced discount for those made within 60 days in the contract is a way to ascertain payment within a specific time frame.
Other clients may stipulate 45 days as their payment cycle, which is acceptable because you will know when to expect the money and when to date the invoice.
Develop A Debt Collection System
Every aspect of your business, like service delivery and collections, should have an organized system for operating. A system like that will keep your accountants and other staff updated with all payments made and keep communication lines with customers open.
A system like that will help you send invoices on time, follow up a few days before they are due, and send a note as soon as they are overdue. A collection system is essential for your business.
It would help if you, therefore, dedicated a professional team to run it.
Send Comprehensive Invoices
Most clients only pay if the invoice has discrepancies or needs more information. Ensure the invoice has a reference number, date, payment terms and instructions, addresses, plus quantities and prices of all products sold.
Also, check the contract to ensure that all customer invoicing requirements are met.
Hire A Third-Party Debt Collector
Most small businesses fall behind on debt collection because tracking delinquent accounts and sifting through accounts is time-consuming. Debt collectors can be agencies or lawyers that receive anywhere between 25% to 50% of the amount owed. In addition, most debt collection agencies specialize in the kind of debt they collect, such as B2B loans, automobile loans, or personal loans.
What Methods Are Deemed Unethical For Use For Debt Collection?
Calling debtors at their workplaces when their employers prohibit personal calls is disrespectful to the client. You or any reputable debt collection agency is also not allowed to call debtors before 8 am or after 9 pm or directly if they stipulate that they have a lawyer.
Other methods that are illegal include:
- Threats and use of violence against debtors, their family members, or damage to property
- Use of profane and abusive language
- Publishing debtors’ names as people that do not pay a debt or their property for sale
- Repeated calls
- Claiming to be a law enforcement agency and threatening debtors with imprisonment or seizure of property if they do not pay
- You are falsely representing the amount owed.
- Falsifying court documents or presenting documents that look like part of a legal process