Don’t Wait Another 30 Days: How to Spot When Late Payments Are Hurting Your Business

It’s human nature. Many people wait far too long to ask for help or get the assistance they need to improve a challenging situation.

We also find this in business. Especially in small business. Many owners and operators attempt to resolve an ongoing challenge until it reaches a point where they can no longer “go it alone.”

This is especially true when it comes to managing cash flow and ensuring customers pay on time. And we’ve heard this story time and time again over the past two decades. A business invoices, calls and sends statements. But for a section of their client base, these prove ineffective. And it’s a clear sign that your business needs professional help.

How can you determine if you need the services of a professional debt collection agency?

Review the age of your outstanding invoices

One of the clear indicators that you need to contact a third-party collection agency is when your receivables go past 30, 90 or even 120 days and beyond. You cannot have positive cash flow in your small business if your customers are paying you six months late.

This is the part of the process where you sit down in a place where you will not be interrupted and systematically review the number of late invoices you have outstanding. Whether it’s with your bookkeeper, CPA or you sit there with your accounting software, run what’s called an aging report.

Some experts say if you have over 10 to 15% of invoices that have gone past 90 days, that’s a red flag you need to pay attention to.

Assess your internal collection efforts and effectiveness

At some point, when you have a list of clients that have not paid you, your internal collection efforts can become ineffective.

One of the clear indicators here is that you and your team are spending far too much time trying to collect overdue invoices with little results.

Ask yourself and your team these questions.

Are calls to clients resulting in payments for past due invoices?

Is our staff adequately trained to collect overdue invoices and handle disputes?

Are letters asking for payment properly worded?

Evaluate the impact on your small business cash flow

When your cash flow is being disrupted because of unpaid invoices, this is another clear indicator that you need outside assistance from a professional debt collection agency.

Many factors can cause negative cash flow such as adjustments in expenses and emergencies such as repairs in your small business. But if you’re not getting paid, that’s a systemic issue that needs attention.

If you’re covering expenses and payroll with reserves and credit lines, that’s a problem that needs immediate correction.

If there is a regular and substantial delay in your receivables, using the services of a collection agency is justified.

Consider the nature and the frequency of your late payments

Before our team begins the onboarding process for any client, we first ensure that we’re a good fit. We also need to verify that there is a genuine need for our services.

Repeat delinquencies or specific customer segments that exhibit late payments or no payments at all is a clear indication that you need additional support with your collection efforts.

It’s good practice to analyze the percentage of chronic late payers during the course of business because from there you may be able to see patterns.

Why does this matter? Because even a small amount of consistent late payers can be a problem for cash flow and absorb a finite amount of resources your small business is currently working with.

Take a critical look at your in-house resources and capabilities

A pretty clear indication you need more help with your collection efforts is when your internal efforts are not producing results. If your team lacks the skills to get people to pay, or they just don’t want to do it, you need support.

Ask yourself these questions:

Does our business have a defined collections policy or processes in place?

Have I trained my staff in how to handle disputes in a professional manner?

Do we have adequate systems and software to track communication and payments with our customers?

Calculate the opportunity cost for your business

When the time spent chasing overdue payments exceeds the potential recovery for your business, you should consider outsourcing your debt collection efforts.

This matters because your team’s time is valuable and it can be far better served by supporting existing clients, increasing revenue and building your reputation.

Do the math. If your staff spends a set number of hours chasing a few $1000 in overdue payments, and you feel those hours could generate more business and revenue, outsourcing makes perfect financial sense for your business.