When starting a business, one of the main problems that you will have to prepare yourself for is the trouble of collecting debts. As in any other business you need a regular stream of revenue and cash flow to keep the company functioning. Since most small businesses aren’t prepared to survive the troubles which their initial year can bring, it is wise to have a devised strategy for any type of emergency.
A discouraging statistic which should convince you that the previous statement isn’t an extreme one is the fact that eight out of ten businesses fail. The financial aspect is always the most bothersome factor of running a business. While the general rule of thumb is to always have a safety net made out of insurance and smart investments, the great majority of owners fail to implement practical solutions and plan for every possible situation. If you’ve found yourself in a situation where you are simply forced to collect your debt from non-paying clients you will find out how to do it in the best possible manner down below.
Understanding the Customer
Although you are probably aggravated and disappointed with this particular individual, you will have to start by questioning their character and your objectivity. This has nothing to do with empathy, nor am I trying to suggest that you should forget about your hard earned money, but if you are able to observe the situation from their perspective you will definitely gain an insight on how to approach them.
Be advised that your initiative may even have a positive response. If you manage to pull this through in a fashion that will secure both yours and your customer’s satisfaction, that customer will certainly not hesitate to purchase from you in the future as well or refer your business to their friends. We will start by categorizing your non-paying clients in three different sections:
- Clients who intend to pay but are unable due to financial troubles.
- Clients that would rather delay payments.
- Clients with no intent of making a payment at all.
Once you determine what type of a client is your non-paying customer, you can start implementing some of the following strategies. However, be advised that once you’ve reached a conclusion that your customer is purposely avoiding to pay their debt, it would be a smart choice to look for a debt recovery agency and legal help as soon as possible. Hopefully, you have a signed contract in that case.
Collecting Debt: Tactics and Strategies
You will definitely want to try and keep your relationship with this customer intact while insisting on collection of debts. Bear in mind that your professional reputation also has a price.
- Send a formal letter which will serve as a reminder. Don’t procrastinate with this initial step and keep your writing tone formal but friendly. Inform your client that you’ve noticed he/she didn’t come through with the payment and inquire about the status. Send warm regards and underline that you value the business between the two of you.
- Try not to pester people, but keep insisting. For example, it is acceptable that you leave one message on their voice machine per day. Two is excessive. Let them know that you are keeping a clean record and that you are depending on their regular payments.
- Be supportive. If your client is trying to explain his situation you should listen to what he/she has to say and show empathy. If you insist on an aggressive approach you might throw them off and actually delay the process of payment additionally. However, if you manage to come up with a solution by working with that problematic client, you’ve gained a great referral and a customer for life.
- Never get personal, no matter how personal your client gets. Be direct, keep your conversations brief and up to the point, and make sure that your debtor doesn’t feel threatened.
- Send letters through a collection agency, it is always a good idea. If you insist on doing it yourself than know how to do it right. However for an affordable fee an agency will write a series of letters and send them out in your behalf.
- Debt agency will usually agree on 50% cut and pay you right ahead. If the debt remains unpaid for more than six month, this is one of the options that you will have to rely on.
- Settle for a discount should be your last option. However if the cost of pursuing that particular customer is only making the problem bigger, offer a settlement and write off their debt through a mutual release.
Keep your revenue stream consistent, keep a clean record of your clients’ status and react as soon as possible. Procrastination will get you and your business nowhere. As an owner you will have to learn to adapt to stressful situations such as this one is, it is considered as a regular cost of doing business.
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