How to Collect Money Successfully from Slow and Bad Payers in a Small Business
In any business, collecting money from your debtors list tends to be a normal, everyday process, except when people persist with not paying. Early on, it can be a relatively minor annoyance. A minor debt is relative though, and so, depending on the size of your business, the non-collection of any debt can escalate into epic proportions where it can tip into, first being a nightmare, and then sliding into disaster. To avoid the disaster situation, one needs a well-planned strategy to counter the moves of the debtors concerned.
Traditionally, over many years, ever since accounting and bookkeeping started, every small business has had its own processes, starting with a simple account reminder. This can work very well with routine account handling, but unfortunately some debt-dodgers have tended to become very sophisticated, and to keep up with their shenanigans, many of the more wide-awake business owners have developed their own strategies to counter their moves.
It is important not to fall into the trap of thinking one can run along normally, almost with a Pollyanna mentality, thinking that the debtors are honorable, and this attitude seems to have given way to a number of well-worn clichés:
1. Falsehoods associated with debt-collecting have troubled businesses for years – but that is just what they are – False, so reject them:
• Getting people to pay on time is difficult and expensive: The facts are that it IS possible to collect your money simply and inexpensively
• Being too pushy for the payment of bad debts is not good for business, or your image, or being too pushy will drive your customers away: The REAL truth of the matter is, who actually needs customers that are costing your business time and money in the long run?
• Bad debts are part and parcel of being in business – if you don’t have them, you can’t be doing too well. The truth is: Successful businesses ensure that their debtor lists are kept the minimum.
2. Weight up and then decide if a debt is worth pursuing
The pundits will tell you very quickly that not ALL debts are really worth pursuing. Here, there are two basic considerations to evaluate:
• The size of the debt in relation to your overall work in progress
• The time required to collect the debt
An example is: Bigger businesses would feel fairly relaxed about a $10 000 debt, but this amount would push a small business to the wall if it was not handled with impunity.
3. Persistence Pays
If you have concluded that a debt is worth chasing, then you must be prepared to be tenacious, employing a number possible options, until the debt is recovered. This is not the time to stand back lamely – it is a call to arms, time for action.
4. Get the attention of the debtor
If you want your recalcitrant rogue/s to pay due attention to your requests/demands, then you must be businesslike and clinical. No time for sentiment or mealie-mouthed platitudes. If your approach is not totally businesslike, the debtor/s concerned will not take your demands seriously – thus effectively consigning your accounts to the IN tray, where they will collect dust, or be consigned to file 13 – the waste basket.
5. Put the “A” into Action
Just in case you may have forgotten: it IS YOUR money, and it belongs in YOUR bank account. So if your first reminder does not bear fruit, then telephone, or pay a visit to the debtor. In fact, both approaches can be effectively combined as follows: On the phone, say to your debtor: “I will be in your area tomorrow, and I will be calling in to your office to say hello, and to collect payment for my outstanding account”.
Of course, you must DO that – avoid writing letters to your debtors, because the whole process can be very time consuming, costly, and rarely gets you payment, especially for those long-overdue accounts.
6. The Mix and Match Approach
You may have to find a way of encouraging some types of debtor to pay, by motivating them by saying that it can have a deleterious effect on THEIR business reputation. Of course, if they will simply not listen to the reasonable approach, then the bottom line is to engage the services of an experienced debt-collection lawyer –but always being mindful of the fact that lawyers cost you time and money – so you must carefully weigh up your options.
7. Think clearly, and ACT creatively
If your constant reminders to your debtor have no effect, you will have to move on to more creative approaches which could include:
• Weigh up, and then match your approach to your debtors interests
o To a soccer fanatic, send a note using soccer terms such as own goal or penalty
o To a baseball fan, refer to being run out or struck out
o To an accounts manager, send a “to-do” list with every item deleted, except the payment of the outstanding amount
Alter your tactic according to the period that the debt has been overdue:
• Send your reminder invoice by adding a few zeros to the amount owing: If the debt is say $5 000, your reminder invoice could read $500 000
It is on the cards that your errant debtor will be on the phone in a flash! So, be prepared, Fedex a special cake, with an apology (for the zeros) and the reminder invoice attached – then send a faxed reminder marked BOLDLY: PRIVATE & CONFIDENTIAL – so that everyone reads it!
The mission of course, is to attract the debtor’s attention, and also provide the information in a creative way, if possible (weigh this one carefully) with a touch of humor, and then make it MORE than easy for them to pay you – this can include a credit-card facility or a reply-paid envelope etc.
Debt collecting is not fun, but your approach, being this way could get even the most hard-bitten debtor to act.
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