Problem-Solution reSizedEffectively managing accounts receivable has its challenges, and delinquent accounts are among them. Here’s a list of nine things you can do to meet that challenge head-on. In fact, make these steps a regular part of the way you handle receivables and you’ll start to see real results in terms of a decrease in the number of delinquent accounts you have to deal with.

The key element is consistency, and consistency is built upon process. You don’t necessarily have to have an elaborate credit and collections policy manual. You do, however, have to establish and actively implement some basic processes that will ensure that you aren’t the reason your customers are paying late. If these steps become part of your credit and collections process, they will go a long way toward ensuring your sales actually do turn into cash in the bank. This is especially important when it comes time to sell your business, because having your accounts receivable under control will increase the value of your business.

Step #1: Decide upfront who gets credit and who doesn’t.  Make a decision about how you will be paid before you make a sale. Will you always require payment in advance, or a down payment of some percentage of the final total? Or will you extend credit to some customers? If you’re going to extend credit, make sure you have some criteria in place to determine who gets the privilege of a loan. That’s right—a loan. When you extend credit, you’re actually providing an interest-free loan to your customer. You need to develop a profile of the type of customer that deserves such a loan, and stick to it.

Step #2: Never accept a verbal order – even from a good customer. Always get it in writing. If you get something less than a formal purchase order, respond in writing with a restatement of the order, the price you will be charging, and your full terms and conditions. Have the customer sign-off, again, in writing. Then, keep all the documentation until you are paid in full. E-mails can work here, but you need to have a method of storing them so you can find them quickly.

Step #3: Be sure your customer clearly understands your terms of sale. As a standard procedure, include your terms on all correspondence sent to the customer, not just on the invoice.

Step #4: Send statements and invoices on a set schedule—statements on the same day of each month and twice a month for delinquent customers. Invoice all sales immediately after the products are shipped. Be consistent—if your customers know when to expect your statements each month, they are better prepared to make payments on time.

Step #5: Contact your customers regularly. Develop a regular routine of “staying in touch.” Call your customers after products are delivered or services are performed to be sure they’re satisfied. After you send the invoice, give them another call to see if they got it, if the invoice is accurate, and, of course, when they plan to send payment. It is very important to keep notes of these conversations for future reference. Equally important is handling any problems with the product/service or the invoice ASAP. That’s great for customer relations. You’ll also find that taking care of these things as they occur is typically much easier, and more efficient, than trying to re-capture information and connect with people involved at a later date.

Step #6: Routinely monitor your customers’ payment habits. Look specifically for irregular payment patterns and requests for extended payments. If you use credit reports, set up a schedule for updating the reports at least annually. Be prepared to adjust terms or retract the extension of credit if anything in a customer’s history sends up warning flags.

Step #7: Follow up immediately on delinquencies. It’s a well-known fact that the probability of collecting on a past due account drops significantly with the passage of time. If possible, contact the customer as soon as the account goes past due to find out what happened. Ask for a specific date on which the customer will send payment. If the reply is that “The check is in the mail,” ask for the check number. You might also suggest payment be sent overnight, or, if you have outside sales reps or drivers, that your driver will pick up the payment. The response to such suggestions will give you a good idea of how serious someone is about paying.

Step #8: Gradually increase the pressure for payment. Prepare a set of letters that become increasingly firm (or phone scripts, if you have the  staff power to make personal calls). Send these letters out at regular intervals, every week or two weeks. The first letter might be a simple reminder of your terms and the missed due date, requesting the customer to contact you if there is an issue. The second might be an alert to the overdue interest accruing (if you charge such interest), and a suggestion that you will not be able to provide further service until payment is made. The third or fourth should demand payment in full by a specific date, and outline what action you will take—for instance, placing the account on COD plus. If you do not hear back and a customer totally ignores you, place the account with a collection agency. (Remember, if you threaten a specific action, you must follow through, or you will lose leverage and credibility.)

Step #9: Come what may, be professional. All correspondence, including e-mails, should include your company name/logo, address, and contact information. Proof everything carefully for typos and grammar mistakes. Read all communications out loud before they are sent—this is a great way to be sure the e-mail, etc., is clear and says what you intended it to say. Keep all written and verbal contacts calm and business-like. Your customers will take you seriously if they perceive you as a professional.

Nothing can guarantee you will never be faced with a delinquent account. In fact, chances are you’ll see a number of them. But making these nine practical steps a consistent part of your receivable management process will help you keep their number to a minimum and achieve long-term success for your company.

An alternative to not offering credit at all is to use credit card processing with your smart phone. The small, free plug-in swipe device is inserted where the earphone plug goes and lets the user accept payment by credit card at the point of sale. For sales where you swipe the credit cards, the rate is 2.75% with no additional fees. You can e-mail the customer a receipt at the point of sale. This can also be used to pick up money due that is overdue.