Collecting overdue receivables is one of the more frustrating parts of running a small business. As much as it may feel awkward and as though your time is better spent elsewhere, staying on top of outstanding receivables is critical for maintaining a healthy cash flow.
Typically the longer a receivable stays outstanding the more difficult it becomes to collect, and between the options of spending way too much time trying to track down payments or way too much money hiring a lawyer or collection agency, overdue receivables are unfortunately something that can end up being put off until it is too late.
In this blog, we will look at a number of steps to help small business owners stay on top of receivables and to take action in a smart and cost-effective way if and when it becomes necessary.
1) Stop putting it off
Making collection calls is something that is not fun for anyone, however, staying on top of them and being consistent will make it much easier in the long run. Remember that in most cases the person/business wants to pay their bills, and a gentle reminder is appreciated.
2) Establish a procedure
Staying on top of receivables is key to spending as little time tracking them down as possible. Businesses should have a plan for receivables, outlining how and when actions will be taken from a friendly reminder to formal notice.
Set up a system that notifies yourself and/or your employees when debts get to a certain point and what action is taken at that time. For example, 14 days overdue send an email, 30 days phone call, 60 days formal notice, etc.
3) Start out friendly
As mentioned, most people want to pay their bills. Coming out of the gate too aggressive can result in customers not coming back and your business getting a bad reputation. Friendly reminders will offend very few and in many cases work as just that, a reminder.
4) Get more stern when necessary
5) Send formal notice
When calls and emails get nowhere it is time to take a more formal approach. It is easy for non-paying customers to avoid emails and phone calls, but a formal letter sent by registered mail is much harder to ignore.
A Formal Demand for Payment makes it clear that enough is enough and that serious action will be taken if payment is not made on or before a certain date. In many cases seeing that failing to pay will result in either court action or being chased down by a collection agency will spur prompt payment.
Recourse makes it easy to create your own professional demand letters and send them via registered mailright from your computer.
6) Proceed with further action
Sometimes no matter how on top of them you are, certain receivables just can’t be collected without some help. At this point, you can decide whether court action or sending the matter to a collection agency is best for you.
Collection agencies can work well and are a nice way to take the matter off of your own plate. The downside is that it is no guarantee that they will be able to collect and if they do, they will take a portion of the collected amount.
Court action such as small claims court can work well for collecting the whole amount owed, however, the money has to be there to be collected. Just because a judge issues an Order to Pay does not mean that the money is instantly in your hands. If the customer still does not or cannot pay, a court bailiff may need to be hired to seize assets to recover the debt, and if there are no valuable assets to be seized you may be out even more costs than when you began.
Both of these options have their pros and cons, so doing everything you can to avoid getting to this step is your best bet.
More information on your province’s small claims process can be found at the links below:
