Collecting with care: effective debt recovery strategies

Small business owners, particularly those that have built a rapport with regular customers, will err on the side of caution when it comes to collecting on overdue accounts.

Many will weigh the short-term benefits of collecting against the long-term risk of potentially alienating current clients and decide a debt write-off is the better business decision. Yet the opposite is true.

Allowing delinquent accounts to lapse without taking appropriate measures to collect is as unnecessary as it is costly, although it may seem preferable to taking the wrong approach.

What business owners need to understand is the problem of debt collection is less a question of whether to collect but rather how to do so in an effective way.

The initial difficulty associated with collections is two-fold. Firstly, it is the failure on behalf of the creditor to implement a pre-emptive accounting process before an invoice has the chance to reach severe delinquency, and subsequently a lack of understanding about effective recovery techniques.

Combined, these two factors amount to a substantive level of stagnant debt, which inevitably becomes a loss for the business.

Prevention is always better than cure

Stringent, well-established accounting schedules will pick up on a late account well before it reaches the critical 90 day period, when collection becomes far less likely. Good accounting practices will also enable the identification of recurrent delinquency and allow time to alter individual invoicing accordingly.

Rather than recovery processes being implemented only as a last resort, it should form part of all accounting processes - irrespective of whether collections have been necessary in the past.

Having set timelines for acceptable payment terms and internal alerts for overdue invoices at every stage means outstanding accounts are actioned in a timely manner, and debt recovery actioned as a matter of course - not a last minute scramble.

Proactive accounting is ultimately about having clear overall steps to follow once a customer has been invoiced, and an equally clear understanding of processes involved in following this up.

This can be a text message or email followed by a letter followed by the engagement of professional debt collectors

Having a script to follow can be helpful here, including anticipating all possible questions and reactions from the customer. This will reduce any unfavourable interaction between the two parties and will ensure that the answers provided will calm, not inflame the situation.

Collecting with care

Customers are far more likely to respond positively to a slow and calm approach than a frantic phone call three months after the due date has lapsed.

This allows time for at least one initial contact to occur from the vendor themselves and ultimately justifies outsourcing the debt to a collections agency.

Yet many business owners, particularly SME owners, are reluctant to enter into the collections process out of fear. There is a certain stigma associated with debt recovery that most business owners are loath connecting themselves with, namely that collections is a nasty business that ultimately alienates clients while making the business appear desperate.

This stigma is only as true as the approach itself and the way the creditor handles the first few conversations with the customer.

A tactful and professional approach helps negate preconceptions about the nature of collections, removing the negative connotations and allowing open discussion regarding the debt.

Providing the customer with a flexible and understanding approach is paramount and helps avoid misconceptions about recovery agents' methods. Professional collectors will always provide a customised approach and allow for flexible payment options.

This increases the likelihood of repayment while preserving the client-customer relationship, and is one of the key benefits of outsourcing.

Collecting on late accounts should certainly never be a desperate act executed by a firm on the brink of collapse. Overdue accounts should never be allowed to get to that point, and if preventative strategies are realised from the outset, steady cash flow need never be an issue.

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