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Tips to collecting an overdue invoice

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When a customer fails to pay a large invoice, the potential damage to your business can be significant. Especially if other sales won’t cover the shortfall.

  • You may need to borrow money to keep the business going.
  • You may end up losing the customer if things turn sour.
  • You may get stressed about it all.

 

While there’s no sure-fire method to collect debts, consider these strategies to improve your chances of getting your money and keeping the customer relationship intact.

Communicate with your customer

Don’t jump to conclusions. Contact your customer personally to find out what’s going on with the large overdue invoice—it may be a simple matter of miscommunication or an accounts payable error.

For example, the customer may be unhappy with the order or didn’t receive everything promised and naturally doesn’t want to pay. Or, perhaps they never received your invoice.

Hopefully, you can resolve the issue and collect payment.

Ask for immediate payment

If there is no dispute with the account, move to collect your money. Try to make it really easy for customers to make a payment by:

  • Accepting credit and debit cards. For example, you can set up payment options using Sage Business Cloud.
  • Accepting direct deposit to your bank account.
  • Accepting e-transfer payments.
  • Offering to send a courier to collect a certified cheque or bank draft.

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If the customer can’t pay the entire amount today, ask for a partial (or “good faith”) payment using one of the above payment options. Set a date to collect the balance outstanding or negotiate a payment plan, if necessary. Send them a written note to confirm the arrangement.

Stay on top of it

No one likes calling overdue accounts because it’s unpleasant—so it’s natural to put it off until tomorrow, the day after, or even next week.

However unpleasant a task it may be, staying on top of accounts coming due and making collections is important because your business cash flow likely depends on that money. Set up alerts using your accounting software to notify you when a customer invoice is due for payment or overdue.

  • If you must, call every day and ask for payment.
  • Email to follow up your call.
  • Send a formal account statement (and charge interest on overdue amounts, providing you’ve made this your credit policy during the customer onboarding process).

Squeaky wheels usually get the grease. However, be sure to read up on what a debt collector can and can’t do in Canada when contacting a debtor.

Last resort—use a collection agency

If the customer won’t return your calls or emails, and the account is seriously overdue, it may be time to bring in a professional collection agency.

A collection agency knows the legal process to get your money. They will possess more experience at collecting receivables than you do. And, if you are concerned about maintaining a relationship with the customer after the debt is settled, hiring an agency will help you to keep the collection process at arms-length.

Agencies collect their fees in different ways. You can expect to either pay a percentage of the money collected, or a flat rate for their services. In some cases, the collection agency will offer to buy the debt from you for cents on the dollar and pursue the debtor on their own.

In more complicated business cases, or in situations where the debtor is bankrupt, it might be best to contact your lawyer for help.

Check your policies

Once you have resolved the issue and successfully collected your money, it’s time to circle back and check your customer credit policy and procedures to see what can be done to prevent a similar situation in the future. For example, you might insist all new customers pay upfront for the first few orders before you are willing to grant them credit.

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