Canadian Manufacturing

EDC: 10 tips to manage overdue receivables

When credit is tight, more buyers try to get away with paying their bills late, and a few, without paying at all. Yet many small business owners still put off reminding their customers about overdue payments—supposedly because they’re too busy or they’re hesitant to “hassle” a customer.

Research shows the longer you wait before following up with a buyer, the slimmer your chances of collection.

Economic Development Canada (EDC) has compiled a list of the top 10 ways to head off payment problems before they become unmanageable.

Take action early: After weeks or months, a customer may not recall which invoice is late or what they ordered from you. Just as bad, your buyers may assume that if they haven’t heard from you, then paying two or three months late is fine.

Pick up the phone: Many exporters tell us that collection letters work best when combined with phone calls. Call repeatedly, if necessary.

Target the decision-maker: Make sure you reach the person who actually has the authority to sign a cheque. You’re less likely to get results by dealing with a beleaguered receptionist.

Kill ’em with kindness: Many companies make it common practice to follow up on a customer’s satisfaction shortly after a sale. You can also use that opportunity to confirm your customer’s planned payment method and timing—before the invoice is overdue.

Ask questions and listen: Try to find out the cause for the delay. Often, it’s simply because the invoice was overlooked. If it’s a cash flow problem, empathize, but make it clear that you expect to be paid by a defined date.

Offer discounts for prompt payment: To get paid faster, you may want to offer an early payment discount. For example, 2/10 net 30 means that buyers get a 2 per cent reduction if they pay within 10 days on a 30-day invoice.

Charge interest on past due receivables: A common practice is to state on your invoice that late charges of 1.5-to-2 per cent per month will be applied to delinquent accounts. This written statement alone can be a good motivator.

Hold out on future shipments: Don’t send any further shipments to the buyer, until the current invoice is paid. This may seem obvious, but sometimes a company overlooks the status of a previous invoice before going ahead with a new order.

Call a collection agency:Placing an account in collection can help you get paid, but it also strains business relationships. Before an account is 60 days overdue, notify your client that you will have no choice but to turn to a collection agency if payment isn’t received within a specified period—then do it, if necessary.

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