Most reputable debt collection experts will tell you that putting the right procedures in place from day one with new clients will save you from debt problems down the road.

Nevertheless, whether you have or haven’t’ set up processes yet, there is no escaping the fact that some companies and individuals will drag their heels when paying invoices.  Some may delay paying you because of cash flow problems, others may simply have longer payment terms within their own internal policies or other financial priorities that bump your invoices down the queue.

Early contact, good recordkeeping and scheduled contact are all critical for increasing your chances of prompt payment.  Here are five steps to help you do that professionally:

1. Make contact by phone as soon as the invoice becomes overdue

When calling regarding a debt, keep your conversation focused on that topic.  You need to set the tone at this first step in order to convey the seriousness of the situation and your company’s policy on late payment.  You can be pleasant but try not to get pulled into a conversation where you allow the debtor to start making excuses.  Be clear about your reason for calling, state when the invoice was due for payment and ask for a specific date of payment from your customer.  Do not leave the call until you have a commitment (ideally a payment date).  At the very least, you should agree a date to call back if the decision maker isn’t available.  Make sure you take the name of the decision maker who will be authorizing payment and find out why the payment is late.

2. Record details and diarise another call in 15 days from your initial contact

You must record all details of communication between you and your debtor.  This is essential if you need to take further action through the courts or with the aid of a debt collection agency in the future.  Take note of the person you spoke to, when you spoke to them and what the conversation entailed.  Then diarise the next contact, ideally 15 days from the previous contact if no payment has been received, and stick to calling on that date to maintain the tone of your company’s payment policy.

3. Put a hold on the debtor’s credit account

If the debtor does not keep to their word and misses payment on the date you have mutually agreed, you have the right to withdraw credit services and put a hold on their account until the debt is cleared.  You have to make the decision on whether to do this based on various considerations such as:

  • Have they been trading with your company for a good length of time and is their spend a significant part of your revenue?
  • Are they a well-established, financial stable company?
  • Is their payment history consistent?

Ideally, your client would have already been made aware that withdrawal of services is a standard procedure for debtors in line with your policy.  You should always notify your contact in advance of taking this action (however there’s nothing like the inconvenience of a ‘hold on account’ to make a payment materialise).

4. Make a formal demand in writing

If your phone conversations have not had the desired impact, you will need to take a more formal tone with your debtor.  You should view this stage as the beginning of more official proceedings.

If you haven’t already sent a statement, copy invoice or ‘overdue’ letter, you should do so within 10-15 days of the payment-due date.  If you are beyond that point and have had phone conversations with the company, you should send a letter explaining what action will be taken if payment is not received by a specific date.  Depending on the status of the invoice, you can decide when to set this date – either by the end of the month or within a certain number of days (normally 7 days).  For greater effectiveness, make the demand letter as relevant as possible, drawing attention to specific promises made, conversations and dates.  The more personal the letter, the more attention your debtor will give it. Follow your letter up with a phone call and email to confirm receipt and email a copy if required.  Make sure you keep a record of all correspondence as you will need this if the debt is passed to a debt collection agency.

5. Pass the debt to a professional and reputable debt collection agency

If you have exhausted your resources in chasing payment, don’t be afraid to pass the debt to a collection agency.  The sooner you take action, the higher the success rate.  Before you do, advise the debtor in writing of your intentions and set a clear deadline date for which you require payment (7 days from the date of the letter is recommended to reinforce the seriousness of the situation).  The threat of a third party agency often provokes a response from your debtor before you need to pass the debt on.

By following the 5 steps above, you’ll keep your debtor collection process simple and straightforward, and you won’t get too sidetracked by your debtors excuses.  By all means negotiate and listen to your customers but don’t let them affect your cash flow detrimentally.

For more advice on debt collection, please visit www.pjcds.co.uk