For all the business owners who struggle with chasing money…… this one’s for you!
The stress and time it can take to chase down overdue money in business can be crippling for many business owners. And as the effects of COVID begin to take hold, it’s about to get even harder. We thought we’d take the opportunity to talk through a ‘best approach’ model on how to chase money and most importantly find the best solution for getting paid. Whilst it would be easy (and often less confronting) to send all overdue, unpaid debt to debt collection we believe there are some steps you can and should take before risking the relationship you have with the customer.
Step One: Invoice Housekeeping Ensure all invoices have clear terms and conditions attached to them surrounding due dates and/or penalties for late payment. Hopefully you have had a lawyer look at your terms and conditions prior to now, but if not, we suggest you do so and make sure you consider the Acceptable Guidelines in accordance with consumer laws in New Zealand.
Step Two: Create templates for late payers Create a couple of templated email options that you can send to customers once they move into overdue territory. Don’t overthink it, just be polite and ask them to communicate back to you with an expected timeframe for payment. If you are using Xero, you can take advantage of the Invoice Reminder feature that automatically follows up on overdue invoices. The only consideration here is that you reconcile daily. If you don’t and a customer pays, they will still receive a reminder and that’s not ideal for managing a positive relationship.
Step Three: Make contact This is important. Because it sets the bar high and sets the expectation with your customer. Moving forward they know you keep a close eye on your accounts receivable and will be in contact if payment isn’t made. Please don’t adopt an Ostrich mentality and bury your head. You need to reach out to your customer and keep the lines of communication wide open. In our experience no one wants to be unable to pay their bills and the real communication trouble begins when both parties become ostriches. Be friendly, be empathetic and look for ways to work together. Just be mindful that you don’t confuse kindness with being a pushover or doing nothing.
Step Four: Offer options If you make someone feel cornered, they will come out swinging. The founding team that established Drip is made up of business owners.They understand that approaching overdue accounts with the right mindset and being open to negotiation is vital when looking for ways to retrieve money quickly and without jeopardising the customer relationship. Drip provides an automated payment arrangement solution that assists you and your accounts team in chasing customers for overdue money. It’s friendly and fair, and gives both parties the opportunity to negotiate an outcome that best suits their situation. In addition, using Drip allows you to use payment amounts and frequency as a strong negotiating tool. You can continue to offer people a limited account facility, or leave them on cash payments if they enter into an agreement.
Step Five: Be Firm Often, the secret to getting paid is to remain firm in your approach throughout the entire process. We call it executing the last mile. If all the prior steps haven’t worked, it’s time to close in and push for action. It is vital that your customer understands you are not a bank and you will require payment. If you have followed all the above steps, being firm in the final stages isn’t going to be too hard. If you’ve given them every opportunity to work together on a solution, you can feel comfortable in finalising the negotiations and offers. Moving forward post COVID, your main goal is to survive the short game and leverage the long game. The short game is business survival and centers around making smart decisions that protect your cash flow in the next 4-8-12 weeks. The long game needs to be focused on being empathetic towards your key stakeholders and ensuring you protect those relationships you worked so hard to build up in the first instance.