6 Tips on Creating an Effective Collections Process

In the perfect business environment, company coffers would be well-stocked, customers would run aplenty, and each transaction made between the two parties would push through without issue. But in the real world, debt is an issue that everyone will encounter.

At any given time, a business owner like you must be ready to confront debt incurred from delayed bill payments, bouncing checks, and the like. You must also expect an array of excuses, wheedling for more forgiving payment conditions, or at worst, being “ghosted” by your customers and left to recoup the losses on your own.

The pileup of such debt is bad news to everyone concerned. As a consequence of the rising unpaid debt, your company will see a dip in its overall net income and heftier expenditures toward your financial recovery. Your customers themselves may risk their credit being ruined or getting cut off from a supply of goods and services that they direly need. The key to resolving your debt problem lies in improving your collection process—which, in summary, involves analyzing payment conditions and policies, getting to the root of each problem, and making it easier for the money to switch hands.

On that topic, here are some tips on creating a functional accounting system for your collections process. Emphasize the importance of obtaining money on time, utilizing all open channels, and being true to one’s word.

1. Review your company’s payment terms and policies. If you are in a position to take the lead on collections, make sure that you have mastery of the company’s existent terms and policies on payment. Moreover, find ways to make it easier for all customers to understand such conditions. You should also make sure that there is little ambiguity in terms of lapses you will and won’t allow before more drastic actions are taken.
2. Capitalize on the timing. Don’t allow long periods of time to pass from a payment deadline. The more time that elapses, the more difficult it becomes to collect the payment that is due. If you miss any momentum in settling these debts, it could slow down the rest of your company’s financial activity.
3. Don’t ignore small debts. The amount that one customer owes you may seem inconsequential in light of a delinquency period of a few days. But what happens if these days turn into weeks or even months? And what if history repeats itself with yet another customer? Think of how much money your company could lose in the long run. Treat every debt, no matter how small, as a matter that you and your customer must resolve.
4. Review the delinquent customer’s situation. The customer’s profile and transaction history may yield clues into any physical, logistical, or financial obstacles that they have when it comes to paying you on time. Perhaps they’re new enrollees to your system and it’s taking longer for them to familiarize themselves. It’s also possible that the unresolved payment is an issue of the wrong billing address or a defunct mode of payment. Maybe this is a one-time situation, or maybe there’s a pattern to the customer’s lapses. All the same, the customer’s info should be helpful in deducing the next step for collection.
5. Engage in follow-up through all possible avenues. No one likes being pestered, but the spiraling debt will leave you no other choice but to reach the customer through all available channels. These can be in the form of text messages, mailed letters, and follow-up calls that increase in urgency of tone. Get the message across that you are paying attention to the debt, and this can become the best outcome as a quick resolution.
6. Be a reasonable and compassionate entity to your customers at all times. Collecting unpaid dues is a difficult task, and it may result in a lot of tension between the collector and the person in debt. But even in a situation like this one, you shouldn’t lose the perspective of your customer. Each one deserves to be treated with respect and considered of value. Temper your insistence that they settle their accounts with a reasonable approach. Let them know that an efficient debt collection process is to your mutual benefit.

In the end, it’s up to you to take control and to claim what is legally and ethically owed to your business. It’s recommended that you do so in a manner that’s firm, of good repute, and of consideration to the goodwill of customers.