Collecting unpaid invoices is probably one of the most tedious tasks of running a business. Most small businesses handle collections somewhat reluctantly. Everyone hates to do it. Therefore, it’s a task that is generally done after everything else is done, or if you need money urgently.

This mistake is costly.


Collections should be seen as the one of the most important functions in your business – second only to client service. Spending time collecting your unpaid invoices brings in the money that your business needs to pay employees, suppliers, and all of its expenses. Without good collections, unpaid invoices would pile up and you would go out of business.

It’s that simple.


Fortunately, collections don’t have to be hard or tedious. It’s a matter of following the right system. We are going to share a few ideas that are easy to implement, simple, efficient, and effective.


Offer discounts for early payments. 

You can you can offer your clients a 1% discount if they pay in 10 days or less. Clients with available funds usually take the discount since it’s to their advantage.  Although early payment discounts can work well, they have a limitation, as early payments are voluntary and clients can choose not to make them. Therefore, you never know if a client will pay early or 30 to 60 days later.


Use a well-written contract

Every sale that you make should be governed by a contract. It should be well crafted and should outline all deliverables, time frames, how disputes are handled, and all payment expectations.


Not using a contract is usually a serious mistake, especially if you are offering payment terms. You will have nothing in writing that outlines when payment is due. And you will have little recourse if you need to take legal action.


Use a delivery acceptance letter

One of the most effective ways to improve your collections process is to use an acceptance letter – a simple letter that states the work that has been done or products that have been delivered to the client’s satisfaction. It should be signed by the client once the work has been completed.


Draft a simple letter. However, don’t make it too onerous or your client may be unwilling to sign it. While this letter can help if you ever take legal action, its objective is to prevent collections problems from happening in the first place.


Send the invoice and paperwork promptly

Send an invoice and any related paperwork as soon as the work is completed or product is delivered. Include the acceptance letter as it helps prove that you delivered according to the contract.


Follow up with clients

Most payments should arrive within your contract terms. However, it’s still a good idea to follow up with clients regularly. On the day that you send the invoice, verify that your client got it, along with all the paperwork.


Some businesses give a customer two weeks past the due date, while others give them one week. There are even those that contact the customer before the due date, just to remind them it’s close.  Pick what you think is reasonable. Test it on your customers. Tweak it if necessary.


Get your facts straight before contacting as customer.  Don’t embarrass yourself by jumping on a customer without knowing what you’re talking about.  Set aside the factors that are beyond your control. If the post office lost your invoice, or the customer’s spam filter ate your email, that’s not your fault. Stick with what you know and what you can control.


Above all, always treat clients with courtesy and professionalism. Never break this rule, even if they are not paying you and are not behaving professionally. You will have better luck collecting slow-paying invoices by remaining professional.  Don’t rant and rage in any of your contacts (telephone or emails). Be cool and professional. Anger and threats won’t help what is already an awkward situation.


Know when to use outside help

No collections method is 100% perfect. There is a small chance some clients will not pay their invoices and the longer the situation drags on, the less chance you will be paid. In this case, you can consider hiring an attorney or working with a collections agency. Dealing with past due and unpaid invoices and collections problems distracts you from running your business and can affect morale. It is sometimes best to let professionals handle it.


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