If you've been an active player in the collection department of your
organization this year, you know that getting paid at all, let alone on
time, has become a tough assignment -- even if your customers aren't going
bankrupt. Consider what recently happened to a client of ours. One of their
large customers had the chutzpah to declare a “no-payment holiday".
For the 60-day period between July 15 and September 15 they were simply not
going to “cut any checks."
Of the businesses who responded to a recent survey about collections,
over 60% said getting paid was more difficult this year than the previous
year. We can't rectify the economic environment, but we can possibly help on
the collection front. We've assembled the following list of thirty (30)
collection strategies. Can we guarantee you'll always get paid within 30
days? No! We wish we could. But try following some of these road-tested
strategies and you're bound to see some improvement.
A word of caution, not all of the following will work for everyone but we
think there is something among these thirty strategies that will prove
helpful to all.
Start With Some Smart Invoicing
1. You do the math.
Many companies now include the following phrase on their invoices: "If
paid by September 30, your cost is x; if paid after September 30, your cost
is y (invoice amount plus interest). Specifying what the amount of interest
would be -- as opposed to merely stating that 1.5% of the charges would be
appended every month – can make a huge difference in how quickly customers
2. Stay consistent.
The language on the invoice should match the language on the contract the
customer signed. That way there's no excuse for customers to claim confusion
over precisely what they are being billed for. That is especially important
if you sell an unquantifiable service.
3. Work off deliveries, not months.
Avoid billing at monthly intervals if you can. After all, you're not the
electric company. It's far better to tie your billing to tangible
4. Stagger your billing.
Don't mail your invoices on a set schedule. When possible, try sending them
out so that customers get them a day or two after receiving your product or
accepting your service. That makes your job a whole lot easier when
following up with collection phone calls. If you've followed tip #2, your
customers will have the perfectly worded invoice in their hands when your
service or product is still fresh in their minds.
5. Don't be constrained by 18 percent or 1.5%.
There is no usury between corporations. 1.5% per month is consumer law.
Interest should be a deterrent to slow pay. Try charging 25 – 40 percent
on past due bills.
Practice Applying Pressure
6. Know your customer's pressure points.
If you can't directly pressure your customer, then pressure your customer's
stress points. In extreme cases reduce terms or credit lines.
Notify your customer’s sales department that they will not be able
to fulfill the orders they have taken.
7. Take legal action.
If things get really bad -- if a customer breaks a promise about making a
seriously delinquent payment -- then send a demand letter with a court
affidavit attached informing the customer that failure to make immediate
payment will result in the filing of the affidavit.
8. Revoke privileges.
Ken Wooley has been in business for 31 years. He says what really bothers
him is: "If I went to Lowe’s today and wanted to buy an appliance,
they would make me pay today, in one form or another," he says.
"But a new business with no track record can call me, wanting thousands
of dollars worth of equipment, and they think they can wait 90 days to pay.
It's a ridiculous system." So Wooley does his best to prevent his
customers from taking advantage of "the system." If a customer
gets too far behind in payments, Wooley immediately converts that customer
to cash status going forward. Unless it's one of his big customers. In that
case, "they pay when they feel like it," he says.
9. Just drop by.
If you don't receive a scheduled payment, you might call your customer and
ask, "Where's the check?" Whereupon your customer might say:
"its right here. It's going out in today's mail." To which, you
should always reply: "Don't bother sending it. I'm going to be in the
neighborhood today. I'll pick it up." That simple tactic might be the
most effective collections procedure out there. And it doesn't always have
to be the credit department who makes the visit. For out-of-the-way
customers, your salesperson in that territory can personally go for it.
Make Your Visit Count
10. Enlist your allies.
Visiting a customer to collect a check may seem like trying to snatch a
hostage from enemy territory. It needn't be that way, especially if one of
the customer's employees is satisfied with your work. Identify people in your customers business that can and will
support your efforts.
11. Always bring backup.
When you visit a customer, make sure that you come armed with specific
documentation to support what the customer owes you. The last thing you want
on a collection visit is a dispute over the amount of the bill. You also
don't want to hear customers say that they either lost or never received the
invoice that you had sent.
12. Remain calm.
You have to be dispassionate about it. Don't raise your voice, and don't
make it personal. Be very bland. Use simple, non-threatening sentences.
Use Phone Etiquette
13. Show some sympathy.
Just as you refrain from getting mad in face-to-face encounters, it doesn't
pay to lose your cool on the phone, either. But how can you remain calm when
some faceless administrator is giving you the runaround? Master the art of
phone empathy. Inform them that you know they're not being paid to chase
around invoices,' or something to that effect. Showing that you understand
where people are coming from helps to mollify them and possibly even win
them over as an ally.
14. Call before the due date.
Remember when fax machines were first used and it was common to call just to
confirm whether someone had received your fax? When it comes to invoices, no
matter how they were sent, the same protocol still applies. It's best to
make the call before the invoice's due date -- not only to confirm its
receipt but also to ensure that the customer's accounts-payable department
has all the supporting documentation it needs to cut the check.
15. Get a commitment.
When you've got someone on the phone, always try to get a specific date by
which you'll get paid. That is a good rule to follow, both during an initial
call for a missed payment and in response to a previously broken customer
commitment. Answers like "soon" or "next week" aren't
acceptable. If the customer is dodgy about dates, calmly mention what you
plan to do if you don't get paid on time. What should you say? You can refer
to "the authorities." You can mention the idea of halting work on
a project. And you can use statements like "You expect us to ship on
time, so we expect you to pay on time". However, when you say things
like that, be sure to maintain an even tone. And remember, if your customer
signed a contract; don't be afraid to refer to it. Constantly. You must
create an expectation within their A/P department that you will call and
insist on payment within the contract terms.
16. Keep notes.
Take detailed notes of every collection conversation you have. Record the
date of the conversation; whom you spoke to; the specific commitment the
person made to you; and finally, what you ever-so-calmly threatened to do if
the commitment was not met. Then, after the actual phone discussion, E-mail
your notes of the conversation to your customer contact. That will (a) serve
as yet another reminder that you are determined to get paid and (b) create
an additional record of the conversation in your (and your customer's)
17. Follow up wisely.
If a customer reneges on a commitment to pay, you'll need to consider
whether you should follow up on your threat. Keep in mind that your goal is
to get paid as soon as possible. Sometimes giving a customer a second chance
is the most effective thing to do. Before you follow up on your threat, ask
if the customer is in any way dissatisfied with the services you've
rendered. If your customer
claims to be happy with your services, then you'll have another reason to
act surprised when you ask -- for the second time -- why you haven't yet
been paid. Perhaps the administrator that you're dealing with is new to the
job; perhaps your contact person just came back from vacation. Regardless,
you'll have to make one of two choices: get a second commitment from your
customer, or take the action you initially threatened to take.
18. Let the punishment fit the crime.
If you decide to follow up on your threat, remember to be as professional as
possible with your contact. Don't act as though you're out for retribution.
Instead, remind your contact of the commitment he or she made and
subsequently didn't keep. Explain that you're not trying to get anyone in
trouble -- you're simply trying to get paid. One "punishment" that
is often successful is to E-mail your contact and "cc" his or her
superior. The message would only restate the nature of the broken
commitment. Here is another instance where it helps to have phone
documentation. The E-mail message should also say something about what you
will do if the bill remains unpaid. Allude to order delays and -- if you're
working your way up the company hierarchy -- to other employees at the
company whom you might need to "cc" on future E-mail messages.
19. Use guilt, not anger.
To achieve your aim -- getting paid -- it's important to get the name of all
the people you've talked to, especially if they've made a commitment. Once
you get that commitment, whoever you talk to will feel guilty when you call
back. They've made you a promise, and often they'll do what they can because
they don't want to be thought of as someone with no integrity. It could be
the owner, a clerk, anyone. What's the proper way to react if your contact
lies to you? With disappointment rather than anger.
It's often just a sigh, then say,
I told my boss you guys were going to pay, and now I'm going to look
like an idiot.' And after saying something like that, rather than being
upset with them, ask for their help."
20. Avoid the owner.
One of the important axioms about collections is: “Never choose to collect
from people who are spending their own money." Most entrepreneurs are
less likely to pay up promptly because it's their own dough they're parting
with. Rather, have collection discussions with someone other than the
21. Never give up.
If you have no choice but to deal with the owner, then you have to make like
a salesperson. Do everything in your power to get past the receptionist just
to get the boss's ear. First, make sure that you talk to an actual person,
as opposed to leaving messages. Of course, business owners receive calls all
the time and expect to be screened from anything that's not at the top of
their agenda. In some cases, you may have no choice but to wait on hold.
22. Don't wait for a reason to call.
Stay abreast of industry news and look for reasons other than payment to
call the customer. For example: A client might be in the news because it is
debuting a new product or having a strong earnings quarter. Call to
congratulate the customer and spend time “schmoozing” with the customer.
The end result is developing a better relationship with the customer
Come to Terms
23. Work with difficult customers.
Your company has its own procedures for billing, but they should be
secondary to those of your customers. If your customer, as a rule, does not
pay vendors in less than 60 days, then prepare to accept that -- don't start
harassing the customer just because your terms are net 30. Similarly, be a
perfectionist when it comes to following customers' instructions. Is the
shipping address different from the billing address? Should you enclose a
separate "shipping invoice" document with your regular invoice?
Does the customer have unusual rules such as enforcing its "do not ship
after" dates? You must comply -- if you want to keep the customers.
After all, if you don't go along with their system, you're virtually
guaranteeing a non-payment.
24. Learn to improvise.
You like to get paid within 30 days, but your customer expects to pay within
60 days. Does your cash flow have to suffer? Perhaps you ask for an initial
deposit. Maybe you make your first bill larger than it normally would be. Or
perhaps you offer the customer a discount for paying in 30 days. The
important thing is that you learn to match your expectations with your
customer's needs -- without crippling your own business.
25. Don't hesitate to negotiate.
Your company needs cash. Your customer does too. Is there a middle ground
where you can meet? Negotiating a payment schedule is one idea. It doesn't
have to be anything fancy. You can ask a late-paying customer to commit to
giving you half now and the rest next week. Seeking a smaller amount might
make it easier for an accounts-payable employee to cut you a check. And
partial payment today is always better than no payment tomorrow.
26. Ask for the oldest first.
Another test-driven tip: If a customer owes you for more than one invoice,
you should start by looking to collect on only the oldest invoice. Asking
for full payment at once can seem too insurmountable. And the collecting
tends to get easier once you've gotten the oldest one.
Plus, by asking for payment on only the oldest invoice, you are
subtly currying goodwill with the customer, who'll appreciate your leniency
in not demanding the entire debt.
27. Think like a landlord.
Maybe you are so eager for business that you will welcome any customer. At
the same time, a prospective customer may strike you as the type that may
prove to be an unreliable payer. One thing you can do, simple as it sounds,
is request a deposit before beginning your work. How much you request is up
to you -- there are no rules here. It's simply a case of striking a balance
between pleasing customers and maintaining your cash flow.
28. Think like a retailer.
For the first many companies have begun accepting credit-card payments. That
may seem unremarkable, but for these companies their customers are not
consumers -- they're corporations like AT&T, IBM, and other
manufacturers and distributors. Accustomed to receiving corporate checks,
businesses never thought the need to accept credit cards. But the times they
are a changing and more and more businesses are using credit or debit cards
to pay for their purchases.
29. Follow the money.
You're in payment discussions with a CEO or CFO. You're thinking that you've
finally knifed through the red tape and made your way to the person who has
the authority to pay you. Don't be fooled. Sometimes even CEOs have little
choice about where their company's money goes. Some CEOs, for example, face
dire financial consequences if they don't periodically pay down their credit
line. Other CEOs don't even call the shots -- they might be indentured to a
group of equity investors with a majority share of the company. That
scenario is especially common today in transportation, hospitality and
retail industries not just with high-tech start-ups. In either situation,
include the company's powerful financial entities in your collection
efforts. For instance, let's say that the contact person at your customer's
company breaks a promise to you. When
sending an E-mail or collection letter “cc” the supervisor or CEO. If
taking that step seems severe, then don't do it -- but you can certainly
threaten to do it at a later date if the customer continues to break its
30. Be enterprising and relentless.
When dealing with proprietorships, partnerships or personal guarantors of
corporate debt and are unable to contact them at work don’t overlook
looking up home numbers in the phone book and contact delinquent payers at
I wish you well.
The information provided above is for
educational purposes only and not provided as legal advice. Legal advice
should be obtained from a licensed attorney in good standing with the Bar
Association and preferably Board Certified in either Creditor Rights or