How to collect payments if your customers haven’t paid

1Send an invoice reminder

Oftentimes, the reason for a missed payment can be as simple as the customer forgetting to pay. It’s also possible the invoice was not received by the buyer, whether it was lost in the mail or the email failed to be delivered.

Short emails are a polite way to nudge your customer that their payment is overdue. You can even send a text message or schedule your accounting software to send an automated reminder. To remain proactive, try following up with customers a few days before a payment is officially overdue.

Tip: Make note of when you contact customers regarding the collection of a payment. Keep dated copies of physical correspondence, and notes regarding phone and in-person conversations. In the event of legal action for nonpayment, you may need this documentation.

2Send a letter

If time is on your side, and your business can survive some days or weeks without the missed payment in question, consider sending a personal, physical letter to get your customer’s attention. Keep your message concise and friendly, and give the benefit of the doubt. You may want to consider offering alternative payment methods, such as credit card or Pay Later options, in case the customer has trouble coming up with the full amount due.

3Get on the phone

The more time passes, the harder it may be to collect payment. When a customer misses a payment, reach out quickly to inquire about the payment status.

That’s why sometimes it’s best to go back to basics with a phone call. Not only will this get the attention of your customer, but it’s also an easy way to get a better understanding of why they’re late on payment.

Tip: Avoid being confrontational when discussing missed or late payments. Keep conversations calm and amiable while making sure your customer understands you don’t take late payments lightly.

4Demand payment firmly

If you’ve tried sending letters, emails, texts, and even tried calling a few times, it’s time to demand payment firmly. Here’s what your message should include:

• What will happen if the invoice is not paid
• A specific deadline for when services will be cut off if payment is not received
• Additional ramifications if the customer fails to respond and pay

5Hire a factoring service

Depending on your business and the number of unpaid invoices, you may want to consider hiring a factoring service.

Businesses can sell their open or unpaid invoices to a third-party factoring company, which pays the invoice at a discounted rate usually within 24 hours. Keep in mind that this is not the same as a debt collection agency.

For example, say you’re waiting on a $10,000 payment from a one-time customer. If you sell it to a factoring company, you may receive 80% of its value, or $8,000. When the debt is paid you’ll likely receive the final percent minus any fees. Businesses in a cash flow crunch may be willing to take a lesser amount to receive a quick influx of cash.

6Hire a debt collection agency

Instead of a factoring service, you can hire a collection agency. Your business is typically paid after the agency collects payment (minus fees). A debt collection agency is usually leveraged for old debts that are taking too much time to track down.

It’s best to speak with your attorney about collection options. They can help determine the best option for the situation and advise on taking your customer to court. However, for small payments, these extreme solutions may not be worth it.

Remember: The best thing you can do as a business owner is to keep your customers happy. Happy customers may be more likely to pay on time.

For more articles on improving your financial wellness and streamlining business transactions, visit our Accounting hub.