How to Collect Delinquent Payments from Clients
- 1). Prevent overdue payments by establishing a standard payment policy and formalizing an agreement with your clients. The formal agreement should establish financial boundaries and clearly spell out how and when you expect to be compensated. List the specific services to be performed or work to be delivered by you and the estimated cost of that service or work. Whenever possible, collect payments up front. Don't forget to screen any potential clients. Unless you are volunteering and expect no compensation, you want clients with deep pockets.
- 2). Any established collection policy is moot unless it is enforced. Of course this means you must contact your clients when your invoices are not paid on time. Having to ask for money is uncomfortable to most people, but the sooner you get over the discomfort and go after what is rightfully yours, the better. The best way to start the collection process is to delegate the task to your accountant. This article assumes that your invoices are sent out by your accountant on time and your clients given the usual 15- to 30-day grace period to pay. If by day 35 at the latest you have not received payment, your accountant should send a reminder to the client, preferably by email. The first reminder should always come from your accountant, as this not only makes you seem more professional, but it allows you some room to maneuver and remain the good guy.
- 3). Depending on the type of business you're in, the second reminder for payment should be sent on day 60 or earlier. It is acceptable for the second reminder to come from your accountant as well, but make sure you are copied on the email. The first reminder uses a gentler tone, but the second is slightly more stern and demanding. The fact that you are now copied makes the situation seem more serious. Clearly state the date by which you expect to be paid.
- 4). Some businesses send a written third reminder anywhere between day 70 and 90 before calling, but calling after the second reminder is acceptable, as well. The third reminder can also be sent via email, but some businesses prefer to send it certified mail. It is entirely up to you how you handle the third reminder as long as you follow up with a call. When calling, you should inquire as to whether or not the invoice reached the right people in your client's accounting department and when they intend to make good on their end of the bargain by paying you for the goods or services you've provided.
- 5). Don't neglect to re-evaluate your account receivable practices since the delinquency in payment may partially or entirely be your fault. Set invoicing standards. Minimize the errors on your invoices as clients are much more likely to pay on time and keep the balance at zero, if the amount you are billing them for is correct. If you find that the fault is in fact with you, take immediate steps to correct the problem. If not, contact your client and find out why your invoices are not being paid on time as per your initial compensation agreement. Suggest a meeting to discuss possible amendments, up front payment or even the possibility of your clients paying in installments.
- 6). If your collection attempts fail, it may be time to turn to an attorney or a collections firm. Consider whether or not it is in your interest to retain this client. If not, fire them. That's right, fire the client and concentrate on the clients that do pay on time.
Source...