Delinquent accounts. The phrase makes most business owners cringe. Delinquent accounts are synonymous with poor cash flow and strained customer relations. Would you believe that half of all business owners deal with delinquent accounts?
Knowing how to handle delinquent accounts is beneficial because most businesses will need to do it at some point. You may need to do it continuously. If a large percentage of your revenue depends on invoicing and collections, delinquent accounts carry a significant risk to your cash flow. This can have devastating effects on your business operations, as well as your opportunities to grow and invest. Though you may have a successful business model with a large group of customers, waiting for them to pay will delay your real business success. Creating a system to collect past due accounts efficiently will give you consistent, predictable cash flow.
It’s easier than it seems. Although many measures can be taken to help prevent delinquent accounts, the real challenge is handling those delinquent accounts that already exist.
So, what’s the best way to collect past due accounts? Follow these 3 steps.
1) Follow up promptly and persistently
How are your customers supposed to remember their payment is late if you don’t remind them? You’d like to think they could remember when they have a payment due. However, these accounts are delinquent for a reason. Maybe they did just simply forget. Remind them.
Maybe they are trying to extend their payment date for their own cash flow needs. Just because they can’t properly manage their cash flow doesn’t mean it should negatively affect yours. Remind them (again and again until you get paid).
Why should you not let up? Because when one of your customers is delinquent, staying persistent will remind them how serious you are about your payment. A customer is less likely to delay when they are always reminded that you’re on top of delinquent accounts. This communication will help you stay at the top of their payment priority list.
2) Use effective language
Words are powerful. Don’t forget this when contacting your customers about delinquent accounts. Be strategic and cautious with the wording when first notifying your customers that their payment is late. A study by Freshbooks shows that just by being polite, you can increase your chances of getting paid by 5%. A simple “please” and “thank you” can go a long way.
However, not all delinquent customers are equal. Some honestly forgot, and are paying late for the first time ever. Others are notoriously delinquent accounts. With this in mind, avoid generic payment reminder letters for every customer. You must craft these letters to fit the situation. Utilize these collection letter templates to help remind customers no matter the payment situation. When you reach out to remind customers, mind your manners and be sure to consider the situation before mailing.
3) Make it easy to pay
You want these delinquent accounts paid as soon as possible, so stay out of your own way. The number one solution to any situation like this is to make it easy for the customer. The easier you make it for them to complete the payment, the more likely (and FASTER) they will.
How do you make paying more convenient for your customers? Offer them options other than writing a check. Make online payments available. Accept credit cards and direct debit. By providing your customers with options, you’re giving yourself a huge advantage. They’ll be able to pay you faster because they literally have a speedier way of doing so. Not to mention, the convenience helps keep them from pushing your payment to the side.
There is nothing fun about delinquent accounts and, yes, there are ways in which you can prevent them, but it’s important to know how to fix a problem that already exists. Get a handle on your delinquent accounts by using consistent reminders, strategic communication and online payment options. Seeing the cash from those delinquent accounts will be worth it.