Effective debt collection strategies (2024)

Here’s an old business expression you’ve likely heard: “The sale isn’t complete until the cheque clears.”

It’s worth remembering because receiving payment from your customers isn’t always guaranteed. Business owners dread making collection calls because they want to maintain a positive customer relationship. But things happen in the business world: People change their minds, economies shift, contracts get broken, cash dries up unexpectedly and bills go unpaid.

While there’s no sure fire method of debt collection, use these strategies to improve your ability to get your money:

1. Know your customer’s credit history

You are less likely to experience payment problems if your business chooses to deal with customers who pay their bills on time. Consider running a commercial credit check on each new customer account before you grant credit.

In Canada, you can obtain commercial credit reports on many businesses through providers such asDun & Bradstreet(D&B).

The information you obtain from credit reporting agencies will help you to set credit terms appropriate to the customer’s financial situation. For example, you might insist on upfront payment from a customer experiencing financial uncertainty.

2. Ask for payment right away

Payment right away can take many forms, including:

• Upfront: If possible, take full payment at the time of sale—think retail!
• Deposit: If full payment isn’t realistic, accept a sizeable deposit from the customer such as 50% or 25% down.
• Quick Invoice: If you can’t negotiate a deposit, be sure to invoice the customer as soon as possible so you can collect your money quickly. Offer an early payment discount such as 2% off the invoice total with payment in 10 business days. Otherwise, make your invoice payable in full within 30 days and attach interest if payment isn’t received by that time.

3. Offer easy payment options

Get money into your business by making it really easy to pay. Consider the following options:

Accept credit and debit cards: Your customer may like the idea of paying by credit card because of theinterest-free grace periodoffered by most business cards. Set up amerchant

• Accountto give customers this option. Learn more about this on the Merchant Services for Small Business page of our website.
• Accept direct deposit orInterac e-Transfer.
• Accept instalment payments: For unpaid accounts, consider accepting post-dated cheques or scheduled electronic payments until the account is settled.
• Accept partial payments: Get the delinquent customer to pay something, today and document any arrangements to satisfy the remaining balance in case there are any disputes. Send them a copy to confirm the deal.

4. Communicate with your customer

Don’t jump to conclusions. Contact your customer about any unpaid amount that is past due. It may be a simple matter of miscommunication.

For example, your sales team may have misrepresented your services and the customer doesn’t want to pay. The product may have been shipped incorrectly. Or, the invoice simply wasn’t received by the customer. Hopefully, you can resolve their issue and collect payment.

5. Use a collection agency

Don’t shy away from engaging the services of a professional collection agency.

While the agency will take a portion of the amount collected or levy a fee for their services, they’ve got more experience collecting money than you do. If you’re concerned about maintaining a positive relationship with the customer, hiring an agency will help you to keep the collection process at arms-length.

When it comes to collecting your money, be firm yet polite with your customers. After all, your business depends on this cash. And chances are your customer will welcome a friendly strategy to settle up.

Before you take action on any of the information above, we recommend consulting with a qualified business advisor that understands your unique needs and situation for your specific business and/or personal plans.

• Photo byChris BensononUnsplash