2. Remind your customers before, during, and after the due dates
It is ideal to send payment reminders to your customers before their invoices' due dates and on the due dates. This can significantly increase the chance of prompt payment in our experience. If that does not happen, you can still follow up with the customers with the collections activities listed below.
- Send the customers dunning letters. Based on the customers' accounts receivable information in the ageing analysis, you can send them details of their outstanding amounts, along with a demand for payment. You can send several dunning letters before sending a final demand letter, also known as a letter before action.
- Give the customers phone calls. You can call the customers as soon as their invoices become past due, or after the first few dunning letters if they have not responded. The goal is to have an amicable conversation and get to know why their payments are late. It could be something simple that you could address quickly, or it could be a dispute that would take you more time to resolve. Either way, having direct discussions with the customers is the quickest way to get to the heart of any payment issues while maintaining your trade relationships. You can call them again after several business days if there is no progress in payment since the last time you called them.
- Meet the customers face-to-face. If the customers do not respond to any of your emails, letters, phone calls, or if you cannot resolve their disputes over the phone, it might be best to arrange a visit and have face-to-face meetings with them to reach resolutions.
- Email the customers. Emails are generally used to support other collections activities. You can send the customers follow-up emails after a call or a meeting, confirming what was discussed in writing and suggesting the next steps.
In accordance with the first guideline, you should keep records of all your correspondence with the customers at this stage. It could be useful in managing disputes or pursuing legal action as situations arise.
Again, it is most ideal if you do all of the above. But when you have to handle a high volume of invoices, just chasing after the outstanding accounts receivable could be a challenge on its own, let alone reminding the customers prior to the due dates.
On top of that, when you have those customers in other countries or continents, just sending the reminders on time could be a complication on its own, let alone calling and visiting the customers on-site.
Timing is essential in tackling late payment. As most companies have experienced that the longer invoices stay overdue, the less likely they are to be collected.
If you cannot simultaneously send the right reminders and perform the right collections activity for every outstanding invoice because of limited resources, you may want to consider giving an extra boost to your collections engine.
More information on this in the guideline #4 "Expand your collections capacity".