When extending credit to customers, you run the risk of accounts receivable going delinquent. Although you might be able to make future collections on the accounts, those accounts still require special management to ensure future business with the clients, explore different payment options, and decide whether legal recourse is necessary.
Maintaining Customer Relationships
Managing delinquent receivable accounts starts by developing a relationship with customers. Communicate your payment terms clearly, including payment due dates and acceptable payment methods. Ensure your customers know how to get in touch with you and ask questions. Every document you transmit to the client should include your contact information.
Keep in contact with customers separately from the order-placing process. For example, send follow-up letters regarding past-due invoices, remit periodic statements, or verbally check in through phone calls regarding past due invoices.
Be empathetic, and deliver quality customer service. A client that is satisfied with the work you perform is more likely to pay your current invoice on time and is more likely to return for additional services in the future.
Negotiate New Payment Terms
Invoices that become past due are not necessarily uncollectable. Instead, be aware of situations that may impact your customer’s ability to pay. Be willing to accept partial payments, installation payments, or periodic remittances to pay down the balance of larger invoices. Consider accepting payment in an alternative payment method, such as a product the customer sells. Your end goal is to get as much that is owed to you. Bankruptcy proceedings and legal recourse doesn’t always yield payment of your entire receivable, so look for options to maximize the amount you collect – even if it results in a future write-off.
Streamline Payment Options
Invoices may become past due because it is simply inconvenient for customers to pay using the methods of payment you accept. Managing your delinquent accounts can be as easy as providing easier ways to pay. This includes cash, cheques, credit cards, electronic funds transfers, wire transfers, or payment remittance through third-party systems.
Be flexible regarding how you receive your client’s payment information. It may be most convenient for a customer to provide credit card information over the phone or physically deliver a cheque to a location other than your main storefront.
Escalating Collection Recourse
There comes a time where you’ve done all you can and you just can’t collect payment. Pursue legal recourse if you have met the customer with enough flexibility and payment options to satisfy the debt. Don’t take legal recourse until the invoice is severely past due (over 60 days).
In addition, address materiality. You may have to write off smaller receivables. Monitor larger receivables – especially those that can have a negative impact on your cash flow projections – and intervene earlier.
Document the historical records of the receivable when undertaking legal recourse. Provide documentation relating to the steps you have taken to resolve the issue without legal intervention. This includes communications, contract agreements including purchase orders or invoices, and banking documentation to show any partial payments made.