Step- by-step guide to collecting payment

A lot of people do not pay until they are asked so the collection strategy boils down to "don't ask, don't get". As soon as the credit period expires contact the client and ask them to pay. You can either write/email to the client enclosing a copy of the outstanding invoice or telephone them.

If you write/email, keep it short and to the point as anything much longer than about four sentences is unlikely to be read. If you telephone, send the client a note confirming what has been agreed so that they do not forget that they promised to pay you.

The telephone is a useful collections tool because it is an interactive medium which means that you can ask questions to obtain information and end the conversation with a commitment to pay.

The telephone call should define the client as follows:

They will pay 

Then they must pay today.

They will not pay

Why not? If there is a genuine query, agree on a resolution and fix a time frame. If the query is spurious, deal with it on the spot. There may be a genuine query that the client is in no hurry to resolve because they are using the query as an excuse for non-payment. Give high priority to dealing with queries and do not let them get away with it. You need to determine precisely what the problem is and why the query was not raised earlier. Agree a time to call back and ensure that the next time you call you are armed with all the necessary information. Before telephoning again, write to the client setting out what you have found out. If there is a genuine dispute, ask for partial payment to cover undisputed items.

They are not able to pay

Some clients may be in genuine difficulties. What is the problem? When will it be resolved? It is important to be firm in these situations. Establish a date when you can expect to be paid and follow up if payment does not arrive. If they cannot pay their outstanding fees in one go, consider establishing a payment plan of a pre-agreed amount each month. If you agree to term payments, for example, if the payments are spread over a period of up to three months. Make sure to ask for post-dated cheques to cover the full amount. Make this clear to the client when you are making the arrangement, so as to avoid only receiving a cheque for the first instalment and then having to chase subsequent instalments as this takes time and results in the debt taking longer to clear.

Even though the tone of the first reminder letter or telephone call is gently persuasive and non-threatening, it is important not to use weak phrases such as 'according to our records, this account has not been paid' as this suggests that your books and records may be inaccurate. This exposes you to the risk of challenge in the form of specious queries which take time to deal with and slows down the collection process. It is also important to keep the letter or telephone conversation simple and focussed and not to refer to other matters as this may give the client the impression that payment is contingent upon some event totally out with your control.

The first reminder should encourage between forty and fifty percent of debtors to pay. If payment is not forthcoming, contact the debtor again and ask for payment, but be firmer this time. Send a letter referring to the first letter or telephone call asking for payment of the unpaid bill which says 'please send payment by return' this time. The tone of the second letter is still polite and courteous but the tone is a lot firmer. Do not use weak phrases such as 'this debt has been outstanding for xx days’ we shall be forced to refer the matter to a collection agency if you do not pay’ as this tells the debtor that they can take xx days credit before you get serious about collecting.

Assuming that 40 percent pay without being reminded and 40 percent pay in response to reminders, this works out as follows:

  Pay Don't Pay
     
No Reminder: 40% 0.40 60% 0.60
         
First Reminder: 0.4 x 0.6 0.24 0.6 x 0.6 0.36
         
Second Reminder: 0.4 x 0.36 0.14 0.6 x 0.36 0.22
         
Total   0.78   0.22

 

Therefore, by following the above collection programme, you should be able to collect about eighty percent of outstanding bills within a couple of months. The twenty percent who need to be pushed very hard to persuade them to pay should be referred to a debt collection agency or solicitor without further ado.

More on getting paid as a freelancer and debt collection.

Joan Yeadon is an independent credit management consultant specialising in small professional firms such as accountants and solicitors. Contact Joan by email on joanyeadon@btinternet.com
or telephone her on 020 8809 2475

                             

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