Organizations in the retail or restaurant spheres may have it easier when it comes to collections. Generally, payments are taken right at a point-of-sale terminal and customers go on their way. (These enterprises face many other challenges, of course).

For other types of organizations, it’s not so easy. Collections can be particularly challenging for business-to-business (B2B) operations, which often find themselves in complex relationships with key customers that aren’t quite as simple as ‘pay up or hit the road.’

In today’s inflationary environment where many are trying to save, the slow-paying customer is becoming more common. If your organization is dealing with slow-paying customers, sometimes it helps to review the basics. Here are six effective strategies for increasing your chances of receiving payment:

1. Request payment up front. For new customers or those with a documented history of collections issues, you could start asking for a deposit on each order. This would generally be a small but noticeable percentage of the contract or order price. You also could explore the concept of asking for a service retainer fee. Although these are typically associated with law firms, other types of organizations may use them to cover all or part of the expected costs of services.
2. Charge fees. Most customers are likely familiar with the concept of late-payment fees from dealing with their credit card companies. Applying this same concept to your collections can pay off. Implement fees or finance charges for past due amounts. Place extremely delinquent accounts on credit hold or adjust their payment terms to cash on delivery.
3. Reward timely payments. An effective collections strategy isn’t only about ‘penalizing’ slow-paying customers. It’s also about incentivizing those who pay on time or who represent a potentially lucrative long-term relationship. Crunch the numbers to determine the feasibility of giving discounts to customers with strong payment histories or to those who have improved the timeliness of payments over a given period.
4. Communicate proactively. Set up regular e-mail reminders and place live phone calls to customers who haven’t settled their accounts. If the employee who works directly with the customer can’t resolve payment issues, elevate the matter to a manager or a leader in the organization . In B2B relationships, it’s often helpful for the manager or an organization’s leader to contact someone higher up in the customer’s organization. If necessary, consider executing a promissory note to prevent the customer from disputing the charges in the future.
5. Get external help. If, after repeated tries, your collections efforts appear unsuccessful, you should start looking into getting help from someone outside your company. This typically means engaging either an attorney who specializes in debt collection or a collections agency. View this as a last resort, however, because third-party fees may consume much of the collected amount and you’re unlikely to continue working with the customer.
6. Claim a tax break. One last important point about collections: If an outstanding debt is uncollectible, you may be able to write it off as an ordinary business expense. Be sure to document each customer’s promises to pay, your collection efforts, and why you believe the debt is worthless. Consult with us about claiming such tax deductions. We also can assist in improving your overall accounts receivable processes.