As a business owner, knowing how to collect payments from your customers effectively is the best way to avoid the Late Payments Death Trap that most US small and medium-sized businesses face.
In this article, you’ll learn all the tips, tricks, and latest technologies that the top debt collectors use to achieve complete collection efficiency in today’s digital era.
1. Make a solid Credit and Collections Policy
The first step to fighting overdue payments happens way before you even extend credit to a customer. Creating a clear and concise credit and collections policy is a straightforward way to reduce the impact of debt on your business.
This credit policy serves you in three main ways:
- Who to grant credit to: This document can be accessed by anyone on the team at any given time and will help address which customers are eligible to get credit, and how much of it. Avoiding difficult debtors before they become one is essential to keep collections lean.
- How to recover it: This document also states the best practices to collect client payments. It’ll keep your team aligned and help you make a more effective collective effort to turn overdue into paid while following all regulations to the letter.
- Educates clients: A well-structured credit policy also serves an educational purpose for your clients. It provides them with clear expectations and outlines the consequences of not meeting those expectations, encouraging timely payments.
2. Set up payment reminders and start before it’s overdue
According to MYOB, well-crafted payment reminders alone can collect up to 79% of all outstanding invoices. That's nearly four-fifths of your money back in your pocket, just for sending a series of messages.
Regarding debts, the sooner you try to collect them, the more likely you will succeed. Consider the moment a debt crosses its due date a ticking time bomb. With each passing day, the likelihood of collecting that debt diminishes by 5%. By the time you hit the 30-day mark, that likelihood has doubled.
Now, you might wonder, "Is there anything I can do before a payment turns overdue to improve collections?" And you'd be right to ask that question. The reality is that debtors often juggle multiple financial commitments, and it's easy for them to lose track of payment dates. Being there to remind them before they happen isn’t a bad idea. So, when setting up a payment reminder campaign, ensure it starts a couple of days before the due date to improve your collection chances.
While these reminders can be completely automated, we don’t recommend setting more than 5 reminders (just one before the due date and four after). Why? Because statistically speaking, by the time you've sent out that fifth reminder, most debtors who were going to pay have likely already done so. What you're left with are the tough nuts to crack, the accounts that usually require a more hands-on, personalized approach.
3. Craft compelling copy
It’s not about just setting reminders but crafting a compelling copy that informs the customer about the outstanding debt and encourages them to pay.
In terms of content, there are 4 things that all your reminders need to include:
- Due date: You should always include when the payment is/was due. In the first reminder, it acts as a deadline, and in the following ones as a reinforcement.
- Amount owed: Giving a precise number helps avoid misunderstandings and also serves as a psychological nudge for the debtor to pay, creating a sense of urgency.
- Payment options: You should always add an easy-to-follow payment option, usually through a custom payment link. This way, you make it as easy as possible to make the payment.
- Contact Information: You should include contact information by law, since the debtor has to be able to opt-out from any communication channel you are contacting them from. At the same time, it is a way for them to discuss any issues they may be facing, and get to a solution that benefits both parties.
About the tone of your messaging, start with a friendly first reminder, and increase assertiveness as you move on to the next ones. The key here is to avoid sounding threatening or pushy, which can backfire quickly.
4. Make payments easier
The last (but certainly not least) step in the collection process is the payment. Here, all your efforts through automated reminders, the hours on calls with debtors, and even the ink of the collection letters you sent can go to waste if you don’t make overdue amounts easy to pay.
In today’s tech-driven world, the answer to easy payments is mobile. Smartphones are quickly growing as a payment tool since they offer a range of benefits that traditional methods don’t. Quickness, convenience, flexibility, security, personalization… They have it all. That’s why mobile payments are one of the fastest-growing trends not only in collections but in commerce.
Finding a mobile payments provider paired with a solid collection campaign might be the difference you need to start growing your business again.
Mastering the art of collections is crucial for any business looking to steer clear of the Late Payments Death Trap. The tips discussed in this post aim to help you supercharge your collections and finally take complete control over your account receivables.