Collection Strategies for Your Business

Collection Strategies for Your Business
  • Opening Intro -

    Many small business operators struggle with cash flow and those struggles often include slow accounts receivables.

    Notably, if money is not coming in, then you will have difficulty paying bills.


You may have to borrow money to close the gap, putting additional financial pressure on you. Consider the following collection strategies to turn this problem quickly around.

Review Your Payment Guidelines

Your financial problems may actually begin with you. Specifically, your payment guidelines may not be clear. Just as you expect money to come in, your customers are looking when to pay you.

It is important that you stipulate precisely when you expect to get paid. That may include, “payment when services are rendered,” or “payment in 30 days of receipt of invoice.” As you can see, the latter choice can put you in a bind, while the former choice requires payment the moment that service is provided.

For some businesses, it may be too much to expect payment immediately. A happy medium may be to shorten payments to 15 days. Or you might place the words “2/10, net 30” on the bottom of the invoice. This means you will provide a discount of 2 percent if the invoice is paid within 10 days. Just make sure that you can afford to give a discount.

Work With Contracts

One way to ensure that you get paid or at least that both parties understand the payment procedures, is to put your business relationship in a contract. Specifically, you and your customer will agree in advance to the terms of payment. Then, you will both abide by the contract.

If a customer falls behind on payments, then he is in breach of the contract. There may be penalties that can be charged for late payments or at least the threat of the same. You want as much leverage as possible when considering this option.

Have a Reminder Strategy in Place

Don’t allow late payments to get you down. And most certainly don’t neglect responding. Create a procedure for your accounts receivable team to remind people of their tardy payments.

That reminder may begin with a letter or an email. It might also be followed closely by a phone call. In any case, you need to have people that treat your customers with professionalism and are polite. It may turn out that the customer is struggling. If so, you might come up with a payment plan to work down the debt in increments.

Persistence is Important

Internal collections isn’t a fun job and after a while the customer that simply isn’t paying can make it difficult for your business. Nonetheless, persistence is important — you need the money and you must remind them that the account is open and due.

At some point, you may have to overhaul your strategy with a particularly stubborn customer. Here, filing a lawsuit or making a claim in small claims court may be your best recourse. It may also be your last ditch effort to collect. Know that you may get your money, but lose your customer.

Ending the Battle

Even if you win your court battle, you may not see a dime of it. It may not be that the customer refuses to pay, rather that he cannot. For instance, if his business is on the rocks, you may be left holding the bag.

At some point, you may simply have to walk away from a bad debt situation. This means cutting your losses, writing off the debt and, hopefully, chalking up what you have learned to experience.

See AlsoSelling Out: How to Get the Most For Your Business



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