Debtors have been known to come up with all sorts of weird and wonderful excuses why they cannot, or will not, pay an overdue account. But, behind every excuse there is sometimes another reason. Of course, sometimes the excuse IS the real reason but many times the excuse is just that ... an excuse.
Your job, as a creditor, is to find out what the real reason is. Once that is known, you can take the appropriate action.
For example, if the reason is genuine, a disputed account balance, you can help the client by proving that the balance is correct or crediting his account if you are in the wrong. If the client is suffering a genuine cash flow problem then, again, you may be able to help him by being prepared to consider a repayment proposal.
BUT, if you establish that the client is simply stalling payment so that the money (that should be sitting in your bank account) is being used for something else, then a totally different approach would be necessary. Think of any excuse that has ever been given to you by a client with an overdue account and the real reason for the late payment can usually be put into one of these categories:-
1. A Genuine Dispute - Disputed balance or unhappy with some aspect of the work performed.
2. Careless - They forgot or didn't understand when they were supposed to pay.
3. Disorganised - Their own books are in a mess.
4. No Money - The intent is there but not the cash.
5. Unconcerned - Couldn't be bothered and too busy to worry about the unpaid invoice.
6. Dishonest - They want to use your money for their own affairs.
1 - A GENUINE DISPUTE
The debtors may have a genuine dispute about the invoice. They may be unhappy with some aspects of the work done, the amount charged or have some other complaint. This is by far the easiest of the reasons to resolve because the intent to pay is probably there.
BUT ... you have to know that there is a dispute to be able to sort it out. AND the earlier that is done, the earlier the invoice will be paid. Therefore, the earlier you start your collection process - the sooner you will find out if the invoice is disputed or not.
Answer? Start the collection process as soon as the invoice is overdue.
2 - CARELESS
If the client 'forgot' to pay the invoice or did not understand the firm’s trading terms - then this is partly your fault for not making your trading terms clear enough. It is very important to set your rules from the beginning. If you are not sending out reminder letters/emails or phoning for payment, some debtors will genuinely forget.
Answer? Don't wait for the invoice to be paid, Christmas may come sooner. Phone or, preferably, write to these debtors as soon as the invoice is overdue.
3 - DISORGANISED
This third reason could be simple inefficiency, poor personal money management or they may just pay creditors on a "pay 'em when they chase us" basis.
Answer? The creditor (you) that is going to get paid first is the creditor that asks for payment early in the piece and then keeps on asking. (Ever tried not feeding your cat when you first get home if that’s the time that the cat normally eats?)
4 - NO MONEY
The first three reasons are not too hard to sort out. The dispute can be resolved and both the "careless" and the "disorganised" merely need prompt and regular actioning. But now, we are looking at the first of the problem reasons.
Answer? As soon you identify that "no money" is the real reason it is absolutely vital to find out two things:
1. if the problem is short-term, or
2. if they are in serious, long-term financial trouble.
Your next course of action will depend on what reason they gave you for being short of money.
For 1, make a firm payment arrangement, put it in writing and follow it up if that arrangement is not kept.
For 2, however sympathetic you may be to their plight, try and get them to come into the business to see you (if at all practical). Talk through the situation with them face to face. You need the answers to a few questions.
1. Are they genuinely trying to resolve their problem?
2. When will they be able to pay?
3. Do they care?
4. Are they worried?
5. Can you help?
6. Are you prepared to wait for their crisis to be resolved?
If they can’t or won’t come into see you, write to them. There are several suggestions for wording in our e-book that will help. Also many tips in this blog to deal with this exact situation.
But be assertive. Waste no time and follow your laid down procedures.
5 - UNCONCERNED
Unconcerned? Too busy to worry about the overdue invoices? You are interrupting their work (or their favourite TV show) when you phone them about it? To use an Americanism, this client has attitude. And that attitude is not convivial to a good ongoing professional relationship. How do you deal with this one?
Answer? Extremely quickly.
Take the same course of action as you did for 2 (in ‘No Money’) above. The letter/email could be adjusted depending on the conversation to advise these debtors what steps you intend to follow. Don't waste time. Do it now.
6 - DISHONEST
If this is the reason, then they are treating your business as an interest-free banking facility and abusing the system. Don’t let debtors like these get away with paying you late. You’re probably better off without them.
Answer? Same as Unconcerned.
There's no magic to collecting money but a few moments spent planning your strategies for different events will pay dividends in terms of prompter invoice payments and less hassle once:
• you have established your own rules,
• you know what to do, and
• you know when you’re supposed to do it.