How To Politely Collect Overdue Payments From Customers
In an ideal world, all invoices would be paid on time and you would never have to worry about chasing up on late payments. Unfortunately, customers are only human and that means that sometimes they forget to pay! We understand when a payment is late and you have bills to pay, it’s tempting to fire off an angry letter.
Sometimes customers don’t realise how much it inconveniences your business when they miss a payment, due to the cash flow issues and the time spent following up. If this has happened to you, here are some tips to tactfully chase up your money, and what to do if you are unable to collect payment.
Automate your payment collection
Before we even get into the strategies to collecting outstanding money, you can make your life a whole lot easier by automating your payment collection. By using things like automatic direct debits, customers won’t have to manually pay their invoices or bills.
Now — not 100% of those direct debits will go through and you’ll still need to follow them up (with the steps below) but it will drastically reduce the amount of chasing up required.
Here at PayChoice, we allow you to easily set up direct debits, online payment gateways, real-time payments and accept credit card transactions. We also integrate with your existing software so you can stop chasing up money, keep your clients happy and avoid double handling.
Send a payment reminder email
Timing is everything when it comes to requesting payment. You want your final product to be fresh in your client’s mind, so it’s often best to request payment immediately after the invoice has been received. (‘Strike when the iron is hot’ as they say).
However, if you use longer payment terms, you can give a gentle nudge by sending a follow-up email one week before the invoice’s due date. If this email doesn’t receive a response, send a second payment reminder email the day after the invoice is past due. If that still doesn’t work, it’s best to give them a call and chat with them, just in case they haven’t opened the email or they’ve been busy with other things.
It’s often best to request payment immediately after your product or service has been delivered.
What to include in your payment reminder email
In your payment reminder email, simplicity is key. You don’t need to include every single payment detail on your reminder email to clients; that’s what the invoice is for. However, it is a good idea to include the invoice number and payment due date for their reference.
Once the payment is officially past its pay by date, it is beneficial to attach a copy of the invoice with your payment details in case your client has misplaced their original invoice.
Also, don’t make it too aggressive. Nobody likes getting a FINAL PAYMENT REMINDER: OVERDUE INVOICE and alarming messages like that. You can be friendly but firm.
What if your payment reminders don’t work?
We recommend sending follow-up emails for a few weeks once the payment becomes overdue, but after a full month, it’s time to be more direct. If you phone the client directly, it ensures you are speaking to the right person and you can find out when you can expect your payment.
If this approach doesn’t get you paid, you may need to get legal advice and ultimately, you may need to take the invoice to a small claims tribunal.
If your emails don’t work, try to call them. If you still can’t get through, then you’ll need to take more action.
What is the debt collection process for small businesses?
It’s important to create a procedure so you know what to do when you are put in this situation, as it can be an emotional time. Try incorporating these steps into your procedure for collecting debts:
Verify when the invoice was due
Contact your customer in writing to request the payment
Set up payment reminders to contact the customer at regular intervals
Send a formal letter of demand for payment
Escalate your action to a debt collection service
Take legal action if warranted
For smaller debts, you might decide escalating the debt to a higher authority isn’t worth the time and money. In this case, just keep sending automated reminders in hopes the client might pay, or write off the debt as a business expense.
Who can help?
Unfortunately, sometimes debt is too big to ignore or write off. Luckily, in Australia, there is a multitude of services you can turn to for assistance in claiming your debt.
The small business ombudsman is appointed by the government to assist with debt recovery and dispute resolution.
Community legal centres can help with writing a formal letter of demand or determining whether it is worth your while to pursue legal action.
Small claims tribunals can assist in settling the debt outside of a courtroom setting, with dispute management and legal forms.
Lawyers are available to help if the amount you are owed is too high to handle through a small claims tribunal. If this is the case, you will need to take the case to a higher court with more formal debt collection procedures.
Debt collection agencies offer another way to pursue the payment owed, however, be aware that this method will result in the agency claiming some of the recovered debt as their fee.
Collecting unpaid invoices can be a stressful time but by taking steps to prevent invoices from going unpaid you can avoid the headache altogether. Reach out to PayChoice today to see how automating payments can change your business.