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Category: ENTREPRENEURSHIP, The Entrepreneur

Collecting you debts: how to get your customers to pay
Written by Bulelwa Mdanyana
22 November 2012

A healthy cash flow is a lifeline for any business and if that part of the enterprise is not managed efficiently, the business could be forced to close down. It has been proven that one of the reasons businesses fail is due to poor cash flow. A large customer base means nothing if they do not pay on time. Small and medium-sized enterprises (SMEs) are particularly vulnerable to bad debtors because they do not always have the cash reserves that big businesses have to fall back on. Most people have had to deal with bad debtors and it is imperative to know how to go about getting your money paid on time.

So what is the best way to follow up on outstanding payments? Here are some tips you can apply:

1.    Contact the debtor with a gentle reminder

The right approach is necessary. Your first contact with the debtor should be in the form of a gentle reminder, either by mail or on the phone. Say that you’re just making him or her aware of a debt that hasn’t been paid yet. This approach allows the debtor to save face by claiming that they "didn’t know" or "forgot.”

2.    If the gentle approach doesn’t work, the next step is to demand payment

You’re no longer pretending that you think the debtor may have forgotten that they owe you.  There’s no need to shout or swear but make it clear that you expect either to be paid immediately or ask for a definite commitment and date for the payment. It is also important to make the debtor aware of the consequences of non-payment.

This may not always work with all your debtors because sometimes there are those who honestly don’t have the money or those who just don’t feel like paying you.

3.    Keep going until you close

If you are collecting by phone,close the call when you have achieved payment in full or reached an agreement as to acceptable terms. If payment in full cannot be obtained, remember that a debtor’s first offer of a payment plan is not always the best. Negotiate for terms that suit you.

Where an instalment plan is adopted, a commitment to amount, method and dates for payment must be obtained before you end that call. After the call, you must send a letter, fax or email to confirm all the details you have agreed upon as some sort of confirmation or proof of your conversation. Record details in the debtor’s file and diarise for follow-up.

4.    Your last resort is legal action

If everything else fails or if the debtor doesn’t keep his promise to pay on the agreed date, you have no choice - your next step is to take legal action.

If he’s overextended and doesn’t have the money to pay all the bills he owes, you have to get yourself to the top of his list of priorities. But how do you convince him to pay you before he pays his other creditors?

The answer is to keep in constant contact, by phone, through email. Do not harass them or become a nuisance because they might end up taking legal action against you.

Collecting money isn’t fun, but you can be assertive without being threatening or ruining a good business relationship.  After all, it’s your money, so there is no reason to feel reluctant about using bold tactics to collect it. Having to write off debt because of people who don’t want to pay can force you out of business, so go get what is rightfully yours.

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