invoice

I recently heard from an extremely frustrated client and her complaint may resonate with many business owners.  She said, “I’m beginning to hate my business! Instead of concentrating on sales – something I love doing – I’m spending half my time trying to get paid. To make matters worse I gave you four files, and your office closed all of them. Surely you can collect on some of these.”

I sympathized and sensed she was taking her situation somewhat personally. Her company had not only provided services, but the clients had also received very generous payment terms – all to no avail.  She had come to us for help, and we closed her files almost immediately, something that does not happen often.

After reviewing the files, I had my answer. All were close to two years old when they were sent to us and the debtors had moved on or changed the name of the business.  I asked her why she waited so long before assigning the files to us.

There was an uncomfortable silence followed by an admission.  “I don’t know,” she said.  “They kept promising that they were going to pay so we waited.”  So besides all the aggravation she endured trying to collect, she was now looking at a write-off, too.

Often with creditors, I find that it’s not the loss of money that bothers them so much, it’s the feeling that they have been taken advantage of. “It’s the principle,” we hear so often.

However you feel about a write-off, one thing is certain; you supplied goods or performed a service in good faith.  We all take a risk when extending credit, but establishing a sensible protocol can greatly reduce write-offs.

Over the last 30 years I have found that a few strategies will not only make for more successful collection attempts, but they can greatly reduce collection problems from coming up in the first place.

Strategy #1- Prepare During the Honeymoon Phase

First, take some preemptory steps that will lessen the likelihood of having to deal with all the fairytales one hears when asking for payment. Your most important tool is information; the more you have the better. Ensure you have the customer’s full name and contact information. This may seem like Sesame Street advice, but you’d be surprised how often we hear that it was Joe at ABC who placed the order.

When dealing with an individual, copy information directly from a formal ID or other document with a printed address so there are no mistakes, intended or otherwise. When dealing with a business, be sure to get a business card to put in your client file. Request a purchase order, or at least something on the company’s letterhead. Take note of the full legal name of the company, physical address, and the full name and title of the person placing the order.

Be sure to have the parties sign a written agreement. So many trials end up in a he said/she said argument because the terms were not clear at the onset. Unless it’s a very complex agreement it won’t cost very much; consulting a lawyer or a paralegal is money well spent.

Strategy #2 Invoicing: Now vs.When We Get to it

Whatever it is that you do, once it’s done get that invoice out immediately. Your invoice should set a time limit for any complaints about the invoice or the service to help protect you from customers who suddenly find a deficiency months later. It will also encourage your client to review the bill upon receipt – something that will benefit all in the end.

Specific interest on past due accounts should appear not only on your invoice but your contracts and statements, too. Don’t feel awkward about it, it’s there for your protection should it become necessary to file a court claim down the road. The collection and legal processes take time and debtors do their utmost to drag things out. This stalling should cost them something.  How much interest a court awards depends on what is spelled out in your documents. If not phrased properly you will only get the very low court rate which now stands at one percent per year instead of 18 percent, for instance.  You are required to state both the annual and monthly rate for it to be enforceable.

Stretegy #3 – Stay on Top of A/R

It’s good business practice to send out regular statements/reminders if the invoice remains unpaid. Whatever your office sends out, create a paper trail by making sure your staff keeps a dated copy in the file even if it’s the same statement or notice you sent last month.

Assign a staff person to call all accounts 30 days past due. Have them keep a record of all collection calls including the date, time, with whom they spoke to and, of course, what was said. Those calls should be followed up by a short e-mail confirming the conversation.

Strategy #4 – They’re still not paying – now what?

If after all of the above you are still getting the runaround or your calls and e-mails are not getting a response, it’s time to take action. Send the customer a polite final request – not two or three — for payment with a firm deadline. Setting a deadline and then sending another request three weeks later undermines the process.

Your final request should point out how past-due the account is, that you value their business, but you can no longer wait for payment. Allow seven or 10 days for a response, failing which you will turn the file over to your collection agency/paralegal/lawyer.

Strategy #5- Get Outside Help Sooner Than Later

Don’t wait too long before taking action. How long is too long? There are no hard and fast rules, and it will vary from business to business. If you are getting regular reasonable payments there is no cause for alarm, but if the client/customer is remitting nothing at all when the account is three months past due you should seriously consider assigning your file to a collections professional.

Setting ground rules, proper documentation, and a professional A/R protocol can help set you up for success.  If you are not receiving payment, don’t wait too long before turning your account over to a third party. You don’t want to be last in line for payment.

Michael Lebovic is President of Canadian Corporate Legal Services, a legal firm that has been specializing in collections since 1985. You can reach him theydidntpay@cclsinc.ca or call (416) 784-3770, ext. 224.

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