Your client isn’t paying up. Now what?

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It’s a B2B company’s worst nightmare: your client is so slow to pay for your services/product, and you don’t know if you’ll ever see payment. Unpaid and overdue invoices are too often a reality in the B2B space, thanks to a client’s sloppiness or internal turmoil never communicated to others.

Delta Inc., a Baltimore firm providing brokerage services to businesses in Maryland, found that about 60 percent of its overdue receivables were linked to transactions with one of its major business clients, Pink Tree Finance, which later filed for bankruptcy.

The Inviting Company, a privately-held wholesale businesses in North Little Rock, Arkansas, is only one of perhaps thousands of wholesale business that find that they have to outsource receivables to commercial debt collection agencies due to incessant foot-dragging by retail customers.

Even Google has run into problems with clients by hiring debt collectors to track down unsent payments.

The headache of collecting the debts owed present challenges that have stumped many seasoned managers. Here’s how you can prepare (and handle) the worst:

The challenges of accounts receivable collection

Generally, credit management experts advise that B2B operations have less than 40 days to pay for services rendered…or better still, 30 days. But the recommended ideal is often not achieved in real life. The situation faced by Qwest Internet Solutions, a New Jersey-based ISP, in which an increasing proportion of its receivables topped over 90 days, is typical of the reality that most B2B services providers face. It’s up to you how strict you want to be with that 30-day rule and how strongly you’ll enforce it.

You’ll be challenged to track down late payments while also avoiding any relationship bruising. Adopting flawed approaches to receivables management yields a high rate of rupturing of business-client relations and shrinking your client base. You have to be firm but also friendly.

How businesses can achieve high receivables conversion rates

A B2B operation must have in place effective policy guidelines for approval of credit, billing and the accounts receivable collection process. All staff must be aware of the process.

With regards to guidelines for approving credit, the first requirement is knowledge of the current financial circumstances of the client to assess the risk of default payment. This could be difficult if the client is not a public corporation and thus not required to publish its financial information. But you can harness your contacts and social networks to learn more about a company’s financial health. If you start seeing red flags, those are the warnings signs telling you to be aware of an unreliable client.

A business must maintain close contact, continuous communication and interaction with clients.  Also, it might help to set up Google Alerts for your clients’ names in order to be notified when their name makes the headlines.

But when you face a delinquent payment, it is not about pestering or harassing the client to pay up. You want to continue establishing an ongoing friendly relationship with the client that widens the space of opportunities to resolve issues professionally. Explain to the client you don’t want to escalate the situation beyond a one-on-one conversation. Don’t be threatening, but don’t be soft either.

Sometimes, if you get a sense the client may not be on time with payment, you should contact the client ahead of the day the payment is due. If the company shows signs or evidence of having cash flow problems you could try to induce early payment by offering an even more attractive early payment discount.

Communication involves sending written notices ahead of due date, phone calls and visits to the client’s office. We have long seen how B2B businesses that have closer working relationships with their clients tend to get paid earlier than others.

But when all else fails, when the payment just isn’t happening, it might become necessary to hire specialists in receivables collection. The last resort is to engage a law firm to pursue legal action. But you must carefully assess the chances of successful recovery through a lawsuit before taking legal action. In many cases attorneys are able to recover the debt without need for legal action.

What other tips do you have for tracking down late payments from clients?

Flickr photo via user fusionsoft 

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