How to make sure you collect your money

While there’s no sure fire method of debt collection, use these strategies to improve your ability to get your money.

Business owners dread making collection calls because they want to maintain a positive customer relationship. Or they’re just not good at being stern.

Here’s an old business expression you’ve likely heard: “The sale isn’t complete until the cheque clears.”

It’s worth remembering because receiving payment from your customers isn’t always guaranteed.

Things happen in the business world: People change their minds, economies shift, contracts get broken, cash dries up unexpectedly and bills go unpaid.

What is the cost of unpaid accounts? Unpaid or delayed receivables may require a business to borrow money and incur interest expense. Running out of money completely can shut down the business. There’s also the stress associated with chasing payments as well as juggling your own payables.

While there’s no sure fire method of debt collection, use these strategies to improve your ability to get your money.

1. Know your customer’s credit history.

You are less likely to experience payment problems if your business chooses to deal with customers who pay their bills on time. Consider running a commercial credit check on each new customer account before you grant credit.

In Canada you can obtain commercial credit reports on many businesses through providers such as D&B (Dun & Bradstreet), Equifax and TransUnion.

The information you obtain from these credit reporting agencies will help you to set credit terms appropriate to the customer’s financial situation. For example, you might insist on upfront payment from a customer experiencing financial uncertainty.

2. Ask for payment right away.

Payment right away can take many forms, including:

  • Upfront - if possible, take full payment at the time of sale—think retail!
  • Deposit - if full payment isn’t realistic, accept a sizeable deposit from the customer such as 50 percent or 25 percent down.
  • Invoice quickly - if you can’t negotiate a deposit, be sure to invoice the customer as soon as possible so you can collect your money quickly. Offer an early payment discount such as 2% off the invoice total with payment in 10 business days. Otherwise, make your invoice payable in full within 30 days—and attach interest if payment isn’t received by that time.

3. Offer easy payment options.

Get money into your business by making it really easy to pay. Consider these options to present to your customers.

  • Accept credit and debit cards - your customer may like the idea of paying by credit card because of the interest-free grace period offered by most business cards. Set up a merchant account to give customers this option.
  • Accept direct deposit or Interac e-Transfer.
  • Instalment payments - for unpaid accounts, consider accepting post-dated cheques or scheduled electronic payments until the account is settled.
  • Get a partial payment, with balance to be paid later. Get the delinquent customer to pay something, today—and document any arrangements to satisfy the remaining balance in case there are any disputes. Send them a copy to confirm the deal.

4. Communicate with your customer.

Don’t jump to conclusions. Contact your customer about any unpaid amount that is past due. It may be a simple matter of miscommunication.

For example, your sales team may have misrepresented your services and the customer doesn’t want to pay. The product may have been shipped incorrectly. Or, the invoice simply wasn’t received by the customer. Hopefully, you can resolve their issue and collect payment.

5. Use a collection agency.

Don’t shy away from engaging the services of a professional collection agency.

While the agency will take a portion of the amount collected or levy a fee for their services, they’ve got more experience collecting money than you do. If you’re concerned about maintaining a positive relationship with the customer, hiring an agency will help you to keep the collection process at arms-length.

Firm and polite

When it comes to collecting your money, be firm yet polite with your customers. After all, your business depends on this cash. And chances are your customer will welcome a friendly strategy to settle up.

Next steps

Find content for your business stage

Planning my new business

If you have not yet started your business, let us help you determine the feasibility of your new idea.

Go

I’ve started my business

If you've been in business up to 2 years select this option to identify how to run your business more effectively.

Go

I’m growing my business

If you have been in business for more than 2 years, determine the crucial next steps for growth.

Go