Even the best of customers can sometimes fall behind on their bills, but with the right blend of firm and friendly you can have your cake and eat it too: keeping the customer and still getting the money you’re owed in a timely manner. Here are 5 steps to help you resolve your past due accounts without damaging the business relationships:
1. A Personal Touch
Does your billing or AR department normally handle communication for invoices? Switch things up by sending the past due customer an email from the head of your company to catch the customer’s attention. A one-on-one email will soften the overall tone, because it’s a nice, personal touch.
In your email, first express understanding and empathy, then elaborate on your hopes and dreams for your company. Next, explain that’s why timely payments are important to your company. This will turn the focus into your small business succeeding or not, not on your desire to continue making a profit. Doing this will strike a more emotional chord, and the delinquent customer will feel subtle guilt; the personal note from you will not be communication they’ll feel comfortable ignoring. Before moving to the next step, try to reach them via phone.
2. Extend the Circle
At the next level, treat the past due bill as any other business issue and cc in the “big dogs.” Include the customer’s boss on the next email and ask for assistance to solve the issue. The overall basic principals of conflict resolution definitely apply to resolving past due accounts; don’t focus on pointing fingers and maintain a tone of politeness and understanding. You don’t even need to say much — just say that you wanted to bring this matter to their attention, and hope they can help resolve the issue so your business partnership can continue unabated. (They are the ones who owe you more of an explanation anyway!) Again, before moving along the debt-recovery path, try to reach out to the head of the business via a phone conversation.
3. Use an AR Management App
An email alerting your customer that you’ve sent them to collections can be quite off-putting, and often times puts a major strain on your business relationship. Instead, use an AR management app. An app can create emails that have a professional feel, like a collections agency’s correspondence, but without the negative connotation. Statistically, the subtle pressure of a third party encourages payment from past due customers. By focusing the message on attractive graphics, it also has the feel of a less severe correspondence. Most AR management apps function as add-ons for your accounting package, so getting set up with one only takes a few minutes.
4. Point Them in the Right Direction
Cash flow problems happen to small businesses from time to time, and you understand that. Try offering your past due accounts seemingly friendly advice, like the availability of new, small business-friendly loan services like Fundera or Kabbage to patch up that temporary cash flow problem. It will be advice taken seriously if you include an anecdote of when you found your business in a similar situation. Empathy and understanding will get you more results than accusations or blame.
5. Last Resort
If you feel confident that your regular business partner will not miss future payments (seems risky, but every business relationship is unique, right?), you can cut your losses and use invoice factoring to get some of the past due invoice paid to you. The factoring company will assume the debt and work to collect the past due amount themselves, similar to a collections agency but with zero of the stigma. You’ll be able to conduct business with the customer moving forward and still get some of that much needed cash back for your business.
Statistically, past due invoices are more likely to be recovered when you use a third party, whether it’s adding yourself, their boss, or a technology solution into the equation. You’re also much more likely to get positive results when you remain polite and empathetic. Keep your chin up, or consult an accountant or AR specialist for a custom plan– it’s their forte!
What’s Next?
- Use invoice templates that encourage on time payment
- Use collection letter templates to increase your success rate
- Read up on how to manage your AR
About Diana Mackie
Diana Mackie is a writer and a believer in The American Dream—small business. Diana helps small businesses stay up to date on the latest news, best practices, and, most important, the top digital tools to increase efficiency and productivity. She also writes for Funding Gates, a company that produces a receivables management software that does just that. Check out the Fund Gates blog for daily advice and tools just for small businesses.
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