No matter whether your business is sailing smooth, treading water, or pushing against strong headwinds during these tough economic times, having a rock-solid and effective collection strategy is integral to maintaining enough cash flow to remain solvent.
But, by taking a few measured steps, you can create an efficient and streamlined collection process to help boost your recovery agency’s cash flow and alleviate concerns about how to handle late payments.
You can consider these tips when developing your collection strategy:
Implement a recovery tracking system
Try and develop a payment-tracking system that automatically alerts you of overdue / soon-to-be-default payments. The sooner you're aware of delayed payments, the quicker and better action you can take. Try utilizing debt recovery software specifically designed to track payments or consult your banker or financial advisor for suggestions about how to get started.
Design a well-defined protocol for missed payments
Now that your recovery tracking system is in place, draft a clear and detailed contract template delineating clear payment guidelines so there is no room for client misinterpretations. Ask each of your clients to sign this contract before providing your products or services. Additionally, draft a letter outlining the consequences of a missed payment ready to e-mail at any given point of time, and follow-up with a phone call to the client in case a payment becomes late. A phone call reinforces the importance of prompt payment and may also provide additional insight about exactly why the payment is late.
Always conduct thorough and detailed credit checks
When working with a newly onboarded client, it is always recommended to conduct a thorough credit and background check. For this purpose, you can even consider enlisting the service of a professional credit check company or accessing credible, inexpensive online resources.
Avoid extended payment terms
When it comes to delayed / defaulting payments, try your best not to extend payment terms beyond 30 days, especially when the economy is tight. If you already have an existing contract that extends beyond 30 days, you can consider offering a discount for faster payment. As much as possible, NEVER extend credit or terms unless you've verified and confirmed that a customer is not in a position to repay at all.
Get help if the above methods don’t work
If you're not having success with your collection efforts, consider enlisting the help of a collection agency or legal expert. Now, apart from the above methods, you can also consider incorporating the following tools into your collection strategy to facilitate increased cash flow:
- Try to offer multiple payment options – To help with quicker payment recovery, your merchant service receipts should be collected within 24 hours. Additionally, offering your clients a wide variety of payment options can also expedite collection. These payment options can include credit cards, debit cards, corporate purchasing cards and fleet cards.
- Remote deposit – To facilitate faster access to funds, consider using remote deposit – a service that enables small businesses to scan deposit checks at their office and electronically transmit them to the bank. Most banks offer this service, and some financial institutions even have software that enhances clients' operating efficiency by integrating directly with their accounting software and enabling them to update their account receivables in one process.
To summarize….
From the above-mentioned strategic methods, it can be safely concluded that with a reliable and efficient payment collection strategy in place, you can devote your valuable time to other key elements crucial to the ongoing success of your recovery business.