Small business owners often have to deal with various cash flow issues. More often than not, these problems are caused by their business partners’ late payments. According to the results of the study published by The Guardian, the UK economy annually loses £2.5 billion, due to late payments.
Business owners who don’t get paid for a longer period of time should collect those debts one way or another. In the following lines, you’ll see how to make the most out of your debt collection process.
Contacting the person in charge of payments
When a business doesn’t have enough assets to make their payments, its managers and staff members might start playing a mind game of referring you from one department to the other.
If you realize they’re playing this game with you, you will need to get in front of the problem.
Call the business in question and ask specifically to speak to the head of the financial department. At this stage, they’ll most probably refer you to their accountant. More often than not, this is not their employee, but an outsourced professional. As such, the bookkeeper isn’t the legal person here.
Because of that, insist on being put through to the financial department. If it’s a smaller business, you may want to talk directly to the business owner.
In case this debtor business is located in another time zone, and you can’t talk to them, do some research on their website. Find more information about the financial department, such as their email address, and write to them.
By contacting the right person regarding the finances, you’ll cut a long story short and save some precious time for your business.
Sending an assertive reminder letter
Sometimes business owners want to pay their debts, but they just forget to make those payments.
This is why you should always do everything you can to remind them about their obligations.
First and foremost, send the debtor a reminder letter. The body of this letter should contain a simple message that will tell the other party why you’re writing and what you expect from them.
Further, you should send an invoice in the attachment, as well. It can be the old invoice with some new details regarding the new invoice date. On the other hand, you can create a new invoice online and send that new version to the debtor.
Also, make sure that the new payment deadline is neither too soon nor too late. For instance, giving seven or ten days to that business to make their payment is a reasonable period.
The reminder letter follow-up
In case your reminder letter hasn’t brought any benefits regarding the payment in question, it’s time for a follow-up. This time you need to approach your fellow entrepreneur in a more demanding way. Still, it’s advised not to take a threatening tone, because that could be counterproductive.
Instead of that, tell them that since your reminder letter hasn’t accelerated the debt payment, you’ll have to take some further steps. By this moment, it’s crucial that you’ve already made some decisions about those new measures you’re going to take.
For instance, you can opt for invoice factoring. It’s a simple procedure in which you give a factoring agency the right to collect the debt from the business that owes you money. This agency pays you most of the owed sum at once, while the rest is paid when they collect the remaining amount and charge their fee.
Further, there are other debt collection options, such as hiring a professional debt collector. This professional will use all the legal and financial measures to make sure you get paid for your work.
Nevertheless, keep offering the business in debt various forms of settlements throughout this process. They can vary from letting them pay you in several installments to writing off one part of the debt if they can pay the rest in cash soon.
Keep everything in writing
What’s essential for every business owner is to keep every single bit of business communication with other businesses in writing.
From the very first contact you make with another business, to negotiations and project estimates, to payment details, make sure that you store every online and offline letter and note.
That way, you’ll have all the documents that you might need in case the debtor doesn’t reply positively to any of your suggestions. Since filing a lawsuit against such a business associate is the only option left, you’ll need to be able to prove that the other party has failed to make their payment, in spite of all the options they’ve been offered.
Collecting debts from other businesses is no cakewalk, but it’s a must if you want to keep your business alive. You can do some things to prevent such an outcome, like handpicking the business associates or negotiating payment milestones. And you still might come across a business that can’t or won’t pay you for your work. In that case, play your cards wisely, never lose control and follow our tips to collect your debt in the most efficient way possible.
If you are looking to get out of the business of collecting from your customers, check out Apruve.
AuthorBio: Mark is a biz-dev hero at Invoicebus - a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.