Working from A-Z on a printed Debtors Ledger and hand writing notes on the side may have been sufficient a few years ago – it is not good enough any more. You need a computerised system to give you the information in a workable format and you need some methodology to get the information in the correct order.
The first thing you should do is to analyse your ledger by amount, customer type and risk category. The natural thing to do is to start on the older balances as they represent your highest risk; this is not always the best thing to do. Your job is to get as much as you can as quickly as you can so you should always start on the high value balances.
Identify your top 20 customers and make sure you know and they know your exact terms i.e. payment is due on the 28th of every month, payment is due on the last day of the month or payment is due on the 10th day of the second month – make sure you are clear on a specific date rather than the usual vagueness of having terms like “30 days” that says different things to different people. Once you have agreement in place you must set a task to contact these customers before the due date to make sure all invoices are received, passed and included in the current month’s payment, then you must put the wheels in motion to make sure it is delivered. If you agree they lodge the money directly into your account or if you or someone else is to collect a cheque it is done at the agreed date and time, this month and every month.
You should endeavour to automate the bottom half of your ledger through Direct Debits, Standing Orders, Credit Card or online payments to reduce the workload on high volume and low value sales.
Then you are left with a section in the middle that represents important customers who fall outside the two camps – for these you have to decide who you are going to call in week 1, week 2 etc. and the ones that will get a reminder letter on a set date. You should automate your follow up process to demonstrate you are serious about the collection of the money that is owed to you and follow up exactly when you say you will. If payment arrangements have to be agreed, agree them sooner rather than later, get a signed agreement and automate the payment process as much as possible.
You should also identify the customers that should receive letters, what type of letters they should receive and the content and timings of these letters for maximum effectiveness. It is important to identify and flag the customers that should never get a standard letter in any circumstances. I could write a book about writing letters, for the purposes of this article the one tip I will give you is to ensure every one is personally signed and is a personal contact with each customer individually. Greetings like “Dear Sir or Madam” are a complete waste of time.
When your own cycle is complete you should identify your escalation procedure to engage a third party collector or legal firm and if all that fails look at last weeks article on write offs.
Follow these simple instructions and your collection process will measurably improve as long as you focus on it.