We have already reviewed best practices for collections in one of our previous posts, and some of you asked us to write another one about “special” clients that take longer to pay.
There are a few crucial steps that will help you improve your overall collection KPIs by getting slow paying customers to pay you faster.
Identify – the first step to solving a problem is to identify it. Your ERP already has all the information. Look at your aging report and check for invoices and clients in the “over 90” aging bucket. These are the ones you want to work on according to the steps below.
Look for patterns – recognizing certain types of behavior is crucial to your ability to create the best plan of action. Is client X repetitively paying late, or is it one time? Are they late only on small invoices (maybe they don’t budget for them accordingly and they take longer to approve)?
This part might require some work but allows you to know who your main concerns are. At Gaviti, we analyze your data for these kinds of patterns to map out all your clients and enable you to easily create a collections strategy.
Have a plan – once you know which clients you need to work differently and once you have collected and analyzed all the data about them, you need to get to work. Having a clear plan of action is key to success in any endeavor – especially one as complicated as collecting aged receivables.
It is a good idea to brainstorm with your team and see what leverage and arguments (apart from the signed contract and PO) you have that will convince your client that paying you is a priority.
Execute – the best plans are worthless if they aren’t executed. Make sure that your team knows and understands the outlined steps and have a time table for engaging the clients. It is imperative to track the steps taken in order to make the team accountable for actions and analyze the effectiveness of the process later.
Cut your losses – sometimes there is only so much you can do. The fact is, that some clients are never going to pay you. Having a good process means that you have a clear policy and know when balances are going to be forwarded to debt collections.
Yes, forwarding the balance to debt collectors means you will probably never do business with that client again, but isn’t the goal of doing business to get paid? If you don’t think so, you shouldn’t be in business anyway.
In order to keep your business healthy and to have an appropriate process, track how many clients end up being forwarded to debt collections.
To conclude: not all clients are going to pay you (accept it and plan for it), but you must have the best setup possible to deal with the ones who will and prepare for the ones that don’t.
It will have a deep impact on your total cash flow and business health.