Successful debt collection strategies begin with a procedural implementation long before a bill is overdue. Determining policies related to collecting on defaulted payments is essential to the foundation of the company, and all policies should be disclosed in the terms of service shared with clients, right alongside sales information and procedures.
Putting your debt collection policies in writing for the client, just as you would any other contractual obligations, helps to show the validity of the company and its determination to recover lost funds. This assures all debt collection efforts are taken seriously by the client and improves the success of efforts to obtain payment in the future.
To ensure the greatest benefit by maintaining a good, healthy relationship with the customer, a business may also consider implementing a goodwill collection call policy. This is a call that is made before the terms of the sale expire and the debt becomes overdue. This helps with quality assurance for the company, verifying invoicing and documentation are correct, as well as a good faith reminder to the client.
When the debt does become overdue, immediate action should be taken. Waiting for the account to become severely delinquent hinders the ability to recover the debt. One way to assure that debts are pursued in the most effective fashion is to categorize them based on the risk involved.
For example, pursuit of traditionally slow paying accounts should be handled differently than those that are newly delinquent or those that have a high overdue balance (set a threshold for this classification). For each type of defaulted payment, a separate debt collection process should be followed to ensure greatest success rates.
Start by outlining a time frame for each type of account, determining at what point which debt collection actions should take place. Categorizing, for example, extremely high debt (based on a threshold set from the start) as high risk and pursuing it with determination will help to recover greater sums more swiftly, especially if payment plans are offered to collect the overdue sum. However, the same results would not be achieved on a slow paying account, which could be suspended until the payment is completed in order to achieve remittance.
Placing greater focus on newer accounts for debt collection can assist in clearing unpaid debt. Pursuing these clients quickly can assist in recovering funds, and because these newer clients have not been a part of the financial basis of the company for a long time, canceling their credit accounts will reduce the number of delinquent payments going forward without creating a void in the company bank account.
Knowledge of each classification of delinquent debt and how to properly pursue the collection of that debt is the most important part of generating the cash flow you need to recover delinquent debt. Having your strategies for debt collection outlined prior to the necessity of pursuing delinquent accounts aids in quicker and more successful recovery of debt.