Many organizations we encounter have waited far too long to implement a solid debt collection program. Because of this, many businesses suffer negative cash flow and these issues could have been prevented by being proactive with their collection activities.
One of the main reasons we see businesses of all sizes hesitate on collection activity is because many feel they will alienate their customers and damage their reputation. Because of this, many organizations lose out on money that is clearly owed to them.
If your business is still hesitating to implement a reputable debt collection program, see the reasons why hesitating can cost your organization untold amounts of money.
The passage of time only makes debt collections more difficult
Generally speaking, the more time passes, the harder it will be to collect the money owed to your business. Memories fade quickly in some people’s minds when it comes to outstanding debt and it’s just good business sense to keep up to date on all areas of your accounts receivables. As time goes by, many factors including consumers moving, excuses and other reasons not to pay become more apparent.
Financial difficulties hinder collecting debt
Your customer may have had a great job with a great salary, or they may have had a thriving business. But at some point, that could change and now they are facing financial hardship. That makes it difficult to repay that debt, even if they intended to. Economic downturns or personal financial crises can also affect a customer’s ability to pay off their old debts with your business. If you did not initiate collection activity at the proper time, it may be more difficult for a consumer to pay your business when faced with these difficulties.
Consumer priorities can change
Consumers, over time can change their priorities and allocate money towards other expenses. They may even be forced to allocate money towards other existing debt. For example, a consumer may be faced with an unplanned major expense such as purchasing a new car, medical bills or expensive home repairs.
Challenges with proper documentation
It is time well spent for your business to be creating the proper documentation for your customers. That includes initial agreements or contracts as well as documenting payment expectations. The more you can document your original agreement with the consumer as well as the steps taken to collect that debt internally the better your chances when that debt gets to collections. We’ll also add that inaccurate or missing documentation can weaken your case when trying to collect debt.
Consumer disputes over invoices
There are several reasons why a consumer would dispute paying an invoice. One of the more common reasons is a dispute over the product or service they received. Other times, if the debt is left outstanding for long periods of time, they may either forget the details or dispute the legitimacy of the debt. They may also disagree with the amount of the final payment for services.
Lack of communication regarding outstanding invoices
When the COVID-19 pandemic affected all of us, there was hesitancy in contacting consumers regarding unpaid invoices. But the fact is regular communication helps consumers meet their financial obligations. The lesson here is to always communicate with your consumers diplomatically and tactfully regarding their outstanding invoices. Not communicating just gives consumers a reason to forget.
Bankruptcy can affect your ability to collect debt
A consumer ‘s current financial situation does not dictate what the future may hold for them. And that includes bankruptcy. If you have waited to initiate the collection activity and your customer declares bankruptcy, it will become increasingly difficult for you to collect that debt. If your customer has declared bankruptcy, their assets can be subject to a court-mandated repayment plan, which may or may not include what they owe you.
Your solution is a well-run accounts receivable and debt collection system
If you have been hesitating to get customers with unpaid invoices to get current, here are a few things that are mission-critical to improving your cash flow.
First, understand that your business cannot wait to implement collection activity. Most businesses are trying to be nice but it only backfires over time in the form of negative cash flow. You can be cordial and diplomatic while running a profitable organization.
Next, review your accounts receivable program from top to bottom. That includes payment expectations to consumers, methods for payment, payment terms, invoicing procedures and internal procedures for unpaid invoices.
It’s also mission critical that you work with a reputable debt collection agency that understands your business, offers a low-cost debt collection program, and understands that kindness and being tactful with your customers is a top priority.
When using that debt collection agency, make sure you follow the system that includes sending over accounts on a regular schedule. Sitting on those accounts for months and even years on end, will only provide more challenges for your ultimate goal which is collecting that debt.