debt collection methods

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debt collection methods

This is the best debt collection method to adopt if you’re like most businesses who look at their Aged Trial Balance and say Where on Earth do I start to sort all this out?”.
If you want to collect all of your unpaid invoices, quickly, try this four-step debt collection method

STEP ONE – Take a completely fresh look.  Open a copy of your Aged Trial Balance. Take a completely fresh look at it. Become the “new broom”. Forget what’s been done before. Start all over again.

 
STEP TWO – Conduct a “YES/NO” review.  Go through all of accounts on the printout, one by one, and simply mark those that you don’t want to follow up right now. It doesn’t matter why. Just note any that you don’t want to follow up.
 
STEP THREE – Classify all accounts into one of 4 categories.

CATEGORY 1 – “The Untouchables”.
These are the “special cases” that you don’t want to follow up for whatever reason (eg genuine hardship / someone who refers a lot of business / a relative (!) / already with a Debt Collector)

CATEGORY 2 – “For Special Consideration”.
These are accounts where the amount of the debt is extremely large or where there’s a “story” behind the debt.

CATEGORY 3 – “Just Due For Payment”.
These are the accounts where the only amounts due are current invoices. Perhaps also include those with only a small remaining older balance, but not those with a largish older balance. (This is where your “fast money” is.)

CATEGORY 4 – “Long Overdue For Payment”.

These are accounts where there is more outstanding than just the current fees. (Balances may be small.)

Remember, the aim of the exercise here is to collect as many of the outstanding fees as possible with minimal work, in the shortest time, and with no client upset.)

STEP FOUR – Deal with each category one by one.
 

***** “The Untouchables” – by their very definition, these accounts are NOT to be chased. Diarise to look at these again in one month. 

***** “For Special Consideration” – look at each account in this classification AFTER you’ve dealt with the next two categories. (These will take a while to resolve, so that’s why they’re done LAST.)
 
***** “Just Due For Payment” – send them all an email with wording like this
 
Dear Sirs,
 
Invoice for: Camelot Pty Ltd
Invoice No: 67299
Amount: $3,575.00
 
According to our records, the above amount appears to be outstanding.
If payment has been made, thank you.
 
If it hasn’t, please organise for settlement in the near future.
Please contact me if you have any queries or if I can be of any assistance.
 
Kind Regards,
Jane Smith
 
***** “Long Overdue For Payment” – send them all an email with wording like this
 
Dear Sirs,
 
Re: Outstanding Fee Balance – $450.00
 
During a recent audit of our accounts it was pointed out that the above balance appears to remain outstanding.
 
As we are not aware of any queries and this balance is considerably overdue would you please now organise for its settlement by return mail or contact me personally if you would like to discuss the matter.
 
Kind Regards,
Jane Smith
 
 
Points to Note:
  • 1:  Try and use a name that’s unfamiliar to your debtors, and, if you haven’t got someone you can use, make one up!
  • 2:  It works because main effort is put into where the fast money is.
  • 3:  This debt collection approach assumes innocence, and is very non-confrontational
  • 4:  The wording in the emails blames other things (the “records” and the “audit”) for following up payment

You’ll be very pleasantly surprised at the results you’ll achieve by adopting this debt collection method. Like every other post in this blog, it’s based on the Three Principles of Effective Debt Collection.
By | 2019-11-12T03:56:10+00:00 August 12th, 2011|miscellaneous|1 Comment

About the Author:

Have you ever wondered why a client does business with you and then ignores your invoice like they had no intention of paying it in the first place or they treat you like their own personal line of credit, leaving YOU dangling, waiting months for their payment? Unfortunately this situation is all too common and can even be puzzling for the most experienced business owner. If you’ve ever had to handle outstanding accounts or you are just so over non-payers, then we can help. Real-world skills, solutions, tips & strategies to get more accounts paid on time, and, most importantly, how to maintain customer goodwill while keeping YOUR cash flow in the positive. You will find the blog posts helpful but to get real results, contact us by using any of the forms on this site, by email or by phone. I’ve been involved in the management of accounts for over 30 years, heard every excuse in the book, can spot a non-payer at 20 paces. Finance Companies in the 70s (systematic, tough), professional firms in the 80s (no systems, too gentle) and, since then, just about every other sort of business you can think of. I’ve written books on the topic, spoken all over the place about it and the blog in this website is my way of “giving back”. I hope you find it helpful.

One Comment

  1. Kennedy Banda April 26, 2013 at 6:55 am - Reply

    useful tips…..especially the wordings in the Email,which do not directly blame the client rather it is information sourcing of there being any query and or a miss recording of payment from a client.

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