Every company approaches the receivable collection process slightly differently.
However, many collections process will have a similar framework.
Contract – before start collecting, we must understand the contract. Best companies will have payment terms, billing contact and invoice submission procedure outlined in the initial agreement.
This is an extremely useful reference for the collector that will try to assure timely payment a few months or years later.
Invoicing/Billing – in order to collect payments, we need to notify the client that there is something to pay, to begin with. Many invoices are rejected due to wrong or unclear billing.
Delivering the invoice to the client is also a major part of the ability to collect it later.
Pre due date – best to start engaging your clients even before you really need to collect. Most often businesses fail to pay on time to some issue with the invoice or the product and not lack of fund (these purchases are often budgeted). Early interaction will help to confirm that everything is in order with the invoices and it is scheduled for payment or to discover any issues that require resolution. Earlier you start, earlier you get paid, simple math.
Past due – once the invoice is past due, you can step up your effort because it means that the client failed to comply with the agreed terms. It is best to contact the client periodically (weekly or bi-weekly) to notify them of past due to invoice and inquire regarding its status and blockers for payment.
Severely Past due – once invoice passes a certain threshold (usually 90 days past due) you must escalate communication, as these receivables represent a high risk for non-payment. You may want to communicate to the client that you won’t be able to supply them with more product or service until the balance is resolved and consider acting on that if there is no progress with the payment. After all, you don’t want to give away your product for free.
Debt collections – some businesses will consider to forward or sell some of their invoices to a debt collection agency if all hope to collect it with in-house effort is lost.
It is important to keep in mind that while the Debt collector has better tools that you to collect these balances, such arrangement is costly (starting at 20% of the invoice) and means that you almost certainly lose your clients business.