It is often said that cash flow is the lifeblood of every business, especially for smaller businesses. However, businesses are occasionally put in an unenviable position when their customers are unable or unwilling to pay their debts as they fall due. In such a scenario, businesses have to consider whether it is willing to take the risk of running into cash flow problems by allowing payment to be delayed further or risk souring relations with customers.
This article aims to provide brief pointers on how a business can collect on debts owing to it as they fall due, while avoiding souring its relations with customers unless truly necessary.
Send Letters and Reminders
While sending letters and reminders to your customers are not necessarily effective, doing so will at least remind them of the need to pay their debts. This method generally works well with those customers who have the intention of paying up but had inadvertently missed the payment date. However, this method might not be effective if a customer is frequently late in paying up despite your reminders.
While it may be awkward and difficult to call a customer and request for payment, making such calls is a direct and efficient method in getting customers to pay their bills. The key in making such calls is to ensure that there is sufficient preparation regarding what is going to be said and to use a positive tone when speaking to the customer while being firm at the same time. It is advisable to adopt a professional approach and not take offense or insult the customer no matter how difficult the customer is.
Making a personal visit to the debtor is another effective method of credit recovery. That said, it is advisable to prepare what you will be doing during the visit to ensure that the visit is a fruitful one.
Negotiate a payment plan
If the above techniques fail, it is recommended to first attempt to negotiate a payment plan with the customer. This will aid in ensuring that one’s relationship with the customer is not affected.
In negotiating a payment plan, businesses should first find out the reason(s) for the lack of payment, as understanding the reason(s) behind the delayed payment will allow you to come up with a payment plan that is fair to both sides and more importantly, within the customer’s paying ability to ensure that some payment is made.
While negotiating, it is advisable do not treat the customer as inferior but as an equal. If the customer refuses the payment option that you offer, businesses should ask the customer to propose an alternative. This signals to the customer that the business takes the negotiation, and more importantly the obligations of the customer to make payment, seriously.
It is also important that the business set a concrete minimum offer that it can accept during the negotiation. Further, it is recommended to consider whether the proposed payment plan is one the customer can afford, for this will avoid customers refusing to pay again by alleging that they are unable to pay.
If one remains unable to collect the payment, one may wish to engage a lawyer to provide advice on the next cause of action. A lawyer can also send a legal later to the debtor advising them on their obligation to pay the business and the consequences for non-payment.
Legal action should be regarded as a last resort. Litigation in Singapore can be expensive and time-consuming. Furthermore, taking legal action will likely damage your relationship with your customer. That said, should legal action be necessary, it is important that you focus on the claim for the unpaid sum instead of letting any anger or emotions rule your conduct of the matter. Further, it is advisable to seek legal advice first before commencing court proceedings. This will allow you to determine whether you are comfortable with the lawyer who will be acting for you.
To learn more about credit recovery, take our course on Credit Recovery and Dispute Resolution. Upcoming course date is on the 26 October 2016. More details can be found here:
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