10 Debt Collection Tips For You And Your Clients

In a perfect world, everyone would pay their bills on time. But unfortunately, debt collection can become a way bigger part of your job than you would like it to be!

If you don’t chase those payments, you and your clients can find yourselves in a bit of hot water.

Debt management is all about protecting cash flow and the overall financial health of a business.

When your clients allow their outstanding invoices to accumulate, it can stall the progress of their business and even damage working relationships.

To stop all of this from happening, we’ve assembled 10 of our top tips for timely debt collection and preventing debt from arising in the first place. Here they are…

10 Debt Collection Tips For You And Your Clients

1: Accounts Receivable Management

Proactively managing the Accounts Receivable process can prevent debt from accumulating in the first place. Timely email reminders or a phone call can prevent small debts from building up.

Setting up reminders aligned with the due date of the invoice can keep on-time payment at the top of the recipient’s mind. Systems like MYOB and Xero make this process easy by offering automated reminders that go out without you or your clients having to remember to send them. Often, these reminders will encourage payment of any forgotten invoices.

Action now: Create a templated reminder schedule and set up standard reminders at common intervals such as 1 day before the due date, on the due date, 7 days past and 14 days past.

2: Prioritise Payment Collection

By educating people that invoice payment is a priority for your business (and your clients’), you can respectfully encourage on-time payment without needing to be rude.

Do this by making it known there will be consequences for late payment, like a late fee or even pausing service delivery. This communicates reasonable boundaries and shows late payment is not tolerated, without damaging client relationships.

Action now: Add proactive late-payment terms to your Terms and Conditions, along with those of your clients, and display them on every invoice that is sent out. Don’t forget to enforce those consequences if you have to.

3: Check Clients Out Before Working With Them

Avoid future headaches by running some basic checks on businesses or individuals before offering them credit. Have a quick Google to see if any red flags pop up. If you have concerns, you can also contact an external business information provider or perform credit reference checks, which will tell you if they have a history of late payments or communication issues.

Action now: Add client screening to your onboarding process.

4: Have Set Collection Responsibilities

If your gentle reminders and proactive payment terms don’t work, you may need to move to the next stage of debt collection. Have a process in place for what that might look like. Who is going to handle the follow-up, what methods of communication will you use, and what frequency will you use?

When you have a consistent process of reminders, calls and escalation steps, you can avoid any debts falling through the cracks.

Action now: Decide who in your business is going to be in charge of collections and document the process in your terms and workflows.

5: Use Clear Communication

Effective communication is vital in the debt collection process. To avoid getting tongue-tied or off track, it can be helpful to create polite and well-worded template emails to send if necessary. You may even find it helpful to create a phone script to ensure your collection calls are concise and on point.

Being prepared will allow you to remain respectful, which will help to encourage cooperation on the payment front! Make sure you also keep track of the communication you have carried out to recover the debt; it can be helpful to record this in a spreadsheet or as a note on the client file.

Action now: Draft some template emails and a brief phone script for recovering overdue invoices. Don’t forget to practice your script before making an actual call so you have a general idea of what you should be saying ahead of time.

6: Offer Options

Being able to offer options for payment can encourage faster debt recovery. Offering the standard payment methods of bank transfer and credit card can be possible through your accounting package. You may even want to take that further by allowing clients to pay off their debt in increments.

If you find that certain services or offers are creating a lot of debt collection, you can review your invoicing process. Potentially collecting an upfront deposit and then issuing progress invoices can prevent a large one-off invoice from being sent and becoming obstructive to pay.

Action now: Explore ways you can offer more options for payment and implement any that will work for your business. Make sure the payment options are also communicated to clients.

7: Escalate If Needed

If informal reminders and proactive calls fail, then you need to decide if you want to escalate the collection process further. Issuing a Letter of Demand is a formal way to encourage payment of overdue debt.

If that still doesn’t work, you can consider appointing a respectful debt-collection agency to take over. Keep in mind, this should be a last resort, as there is a very good chance a formal debt collection process will tarnish the relationship you have with a client.

Action now: Create a Letter of Demand template and parameters around when you want to send it to late payers.

8: Let It Go!

Sometimes, you just have to go Frozen on a debt and just let it go. Not every debt is worth your time. You can tell it is time to let a debt go if your recovery efforts are consuming more resources than the debt’s value. If this happens, simply cut your losses and document the decision you have made.

Action now: Set a threshold for when you will write off debts - it might be that you suggest your clients write off debts that are under $200 after three genuine contacts have been attempted.

9: Continuously Review

Your process for debt collection is likely to evolve over time. So, regularly review your scripts, follow-up frequency and the outcomes of your efforts. Use the information from your review to figure out what works best and to improve your processes.

Action now: Schedule a quarterly review of your collection strategy and tools.

10: Have Your Clients Adopt Best Practices

Many businesses don’t realise how much overdue debt can impact their cashflow until it’s too late. One of the most powerful ways to reduce debt from becoming an issue in the first place is to develop strong internal systems.

Guide your clients to take the following steps:

• Send their invoices promptly
• Set clear payment terms and invoice due dates
• Adopt a consistent follow-up process
• Understand how to have difficult debt conversations

When you educate your clients in these areas, they are not only taking more control over their finances, but they are also reducing the potential for anyone having to chase overdue payments.

Action now: Add an education piece to your onboarding process so that all new clients are adopting best practices. Then, go through and review the processes each of your existing clients has.

ICNZB Can Help With Debt Collection

Effective debt collection is an important part of successful bookkeeping and becoming an ICNZB member can help you perfect this process:

• Resources and tools: With a whole range of resources and tools to draw on, the ICNZB information database is a goldmine of helpful information.
• Community support: Learn from other members who have successfully recovered debts and how they did it.
• Credibility: As an ICNZB certified bookkeeper, your clients will trust you to manage their finances and collect their debts with skill and integrity.

To find out more about becoming an ICNZB member, you can simply browse our website now.