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Businesses sell products and services for profit. The income generated from sales is reinvested in the business for growth and maintenance. When customers do not make payments or delay payments, valuable time and money is lost trying to recover the debt.
Prevention is better than cure. Verify the financial situation of customers before extending credit to them by checking their credit rating.
Specify terms of repayment clearly
Terms of the credit transaction should be set down clearly in the contract between the customer and you. The customer should be clear on the schedule fixed for settling the payment and the penalty of late payment. Inform customers at the onset that delay or loss in payment may compel you to report their business to the credit rating bureau. This makes the customer take the repayment contract more seriously.
Keep accurate records
Keeping accurate and updated records of all the credit transactions and receivables ensures you are informed on the state of debt incurred by your business. Accounts receivable reports must have the customer name, details, credit amount owed, payment due date and delays in the payment.
Remind customers of payments regularly
Send the customer statements of the debt on a regular basis. If the payment is pending, remind customers to settle their dues by sending letters and calling. Persistence is vital in the debt recovery process. You may have to send letters or call many times before getting a response. The risk of hurting their credit rating also spurs customers towards settling the debt.
Handle conversations smartly
Do not ask customers if they have received the bill from your company. This will give them the perfect excuse to get out of the situation. Delinquent customers will generally try to convince you with some sob story of their finances or personal situation. You need to stay focussed during the conversation and make the customer understand you have a right to expect payment at the earliest.
Use ‘skip tracers’ to locate absconding customers
Customers who move without informing you of their new address are avoiding payment. Hire ‘skip tracers’ to locate customers who cannot be contacted through letters, email or phone . Skip tracing is an economical option and saves you the time, effort and expense of locating the customers yourself.
Hire a collection agency
Most collection agencies assure a professional and respectful approach towards customers while recovering debt. The agencies have skilled personnel who are conversant with debt collection laws, strategies and customer attitudes. They also have the required tools and technology for timely and efficient collection of debt. Collection agencies are paid on commission or fixed rate. They are generally more successful in collecting debt than the creditor.
Hire a lawyer
If the customer is particularly difficult, you may have no other option except hiring a lawyer. Though an effective option, it is expensive and also fatal to your customer relationship.
Hiring a collection agency is more effective in recovering debt than in-house strategies. However, verifying credit ratings, accurate record keeping, communicating with customers and skip tracing at the in-house level could help in the debt recovery process. Even if you transfer the customer account to a collection agency later, you can reduce the research time by providing them with updated information.
Before you hire a vendor, compare collection service price quotes at a Business Network. For further information, read our debt collection agency advice.