Common Sense Methods to Avoid the Need to Collect

Collection is rarely easy or pleasant. Here are some common sense steps you can take to plan ahead and minimize the need to send your customers to collection.

Set clear payment guidelines, and put them in writing.
Begin any business interaction by laying out a contract or agreement, clearly stating what is expected, including terms of payment. Putting everything in writing aligns the expectations of both parties, preventing misunderstandings about the terms of the deal, including when payment is expected. In the unfortunate event that there is a legal dispute over payment, the presence of a contract can also make a significant difference.

Craft a regular billing pattern between you and recurring customers.
Make sure bills always go out at the same time — for example the 1st or 15th of every month — with consistent deadlines for expectation of payment (more on this later). A consistent rhythm trains the customer to expect the bill at a certain time, so they will be more ready to pay as soon as it’s received.

Use discounts and late fees as a “carrot and stick.”
To encourage prompt payment, consider offering the customer a small discount if the bill is paid within a shorter period of time (such as 15 days instead of the normal 30 days). Alternatively, you can also consider adding late fees to discourage late or overdue payments from customers as well. Again, this encourages the customer to take care of everything as soon as they get the bill. Just makes sure all of these terms are discussed up front and in writing.

Set shorter due dates for expectation of payment.
This one is simple, and easy to apply. Shorten the term of your payment expectation so it carries a sense of urgency. If an invoice reads, “Payment due within 30 days,” it’s easy for the customer to put the invoice aside and think “I can get to this later,” and then forget all about it by the time the deadline rolls around. But if the term is shortened to 7 or 14 days, the same client may think “Might as well pay this now so I don’t forget.”

Establish a dedicated person for billing contacts or reminders.
Many of us dread calling our bank for fear of being handed off between dozens of operators and automated systems. If you run a small business, make sure your customers have the opposite experience when they deal with your billing department. Putting a dedicated person in charge as the primary billing contact for your customers will provide a more pleasant and personal experience, making the customer less likely to avoid dealing with any billing issues.

Get the money up front!
This is by far the easiest and most reliable way to make sure you get paid! Whenever possible, get payment up front and avoid the whole headache of having to collect overdue bills. Similarly, if you are selling goods or products, you can also consider converting some of the sales to Cash/Collect on Delivery (C.O.D.) terms.

Hopefully, employing some of these measures will reduce the stress of having to chase down customers for overdue payments, and minimizing potential disputes down the road.

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