COVID-19 has shuttered some businesses and reduced the activity of many others. As a result, many businesses are coming up short, both with paying and getting paid, and it can be challenging to figure out how to collect overdue payments from clients.
While you want to be patient during a time when everyone is struggling, you also need to pay your employees and expenses. If Net 30 has come and gone, here are some tips on how to resolve this problem.
1. Start With a Friendly Reminder
With teams working remotely, it’s possible that your invoice was overlooked. Give your customers the benefit of the doubt and start with a friendly payment collections email to follow up on the situation. Make sure to keep the tone polite and professional. For example:
This is a friendly reminder that [invoice number] in the amount of [$] was due on [date]. If you’ve already made the payment, please disregard this letter. If you have not yet sent payment, please do so immediately or call us at [phone number] to make arrangements.
2. Consider Adding Late Fees
Sometimes the customer needs motivation to move your invoice to the top of the list. If you don’t currently add late fees to invoices, consider starting now. State the charge as well as the date it will be added to the invoice. You can point this out in your overdue payment reminder.
3. Pick Up the Phone
If the friendly reminder doesn’t result in payment, it’s time to pick up the phone. A call is harder to ignore than an email or letter. It also makes it easier for you to understand your customer’s situation and to learn why they’re late paying the invoice.
When you get them on the phone, keep the tone light but professional. As the saying goes, you catch more flies with honey than vinegar. If the customer isn’t in a position to pay you immediately, ask when they expect their circumstances to change and then work out a solution.
4. Offer a Payment Plan
Some money is better than none. While you do want to collect everything you’re owed, you may be successful in getting the payment collections process started by offering an installment plan. Perhaps you can take a $20,000 invoice and break it into 10 equal payments, with or without interest.
Another option for how to collect overdue payments from clients is to accept partial payment to settle the bill in full. If you had a high margin on a project, for example, you might decide that the market and economy have changed and you’re willing to forgive a portion of the bill as an act of goodwill.
5. Escalate the Issue
If you still don’t resolve the problem, you may have to go higher on the chain of command. If you’ve been dealing with the customer’s accounts payable department, consider reaching out to the CEO or owner directly. When you speak with them, maintain that polite and professional manner. Ask if there’s a problem that you need to be made aware of and when you can expect payment. Having this conversation may push your bill to the top of their next round of payments.
It’s good business to explore every possible avenue before turning over the account to a collector. It can be better to collect the payment yourself, especially during these times of financial strain, because a collections agency for small business typically charges a percentage of the money they recover for you. In some cases, that can be as high as 50%, according to Investopedia.
Instead, demonstrating that you understand a customer’s situation can go a long way in terms of building relationships. If you’re patient, your customer will remember that and feel loyal, and that could pay off once the economy recovers. If you send their bill to collections, you may lose their business forever.
To make this possible for yourself, it can help to put financing in place — perhaps a short-term small business loan — to cover your own shortfalls that are created by extending payment due dates. As a small business owner, you know that missing your own payments can negatively affect your reputation and finances. Taking an attitude of “we’ll all get through this together” can go a long way now and once we emerge from the crisis.