Excellent customer service and chasing debtors—are they incompatible concepts?
So, your client has always been a good customer but now, for whatever reason, suddenly you can’t get them to pay their overdue accounts. You’ve sent reminders and made a few phone calls, but nothing is happening. You don’t want a temporary situation ruining a good client relationship, so you hesitate to call in debt collectors because you worry this will be seen as heavy-handed. But that’s where the misconception lies.
Debt collection doesn’t mean using overly aggressive standover tactics to strike fear into clients and send them running from your business. A reputable collection agency will deploy successful strategies for managing your accounts receivables and enhance your business’s reputation rather than damage it. Contrary to popular belief, it is possible to collect on overdue invoices without causing bad feelings between you and your client. The best way forward is to set up systems so that the process of collecting accounts is seamless, stress-free, and completely unemotional.
Good customer service depends on you undertaking a process of due diligence well before any need even arises to chase aging accounts. Before taking on a new client, it means you’ve gathered enough background information about the client to be able to make an informed judgment about their fiscal situation. Collecting information about potential new debtors before taking them on allows you to objectively assess their creditworthiness through the use of credit management tools, such as credit reports and trade references. These tools will help you identify whether a potential customer has been marked as a possible future credit risk, and provides you with the information you need to decide whether to offer trade credit at all, or perhaps only offer COD terms.
Managing trade credit while also providing good customer service also requires a watertight credit policy. Your business’s credit policy or terms of trade should outline all aspects of how you will provide credit (whether in the form of goods or services) to your customers, including the credit limit and the payment terms. Just as you need to be thorough regarding evidencing the fact that a debt is being incurred (through contracts, agreements or signed terms of trade), your company’s credit policy must also be well communicated to the client in all paperwork exchanged, including setting out the sequence and timing of steps you intend to take to collect outstanding debts. This becomes particularly important should non-payment lead to you taking legal action.
Apart from due diligence conducted during the client onboarding process, you should also continue to monitor their financial position as you move forward doing business with them. This may mean engaging the services of debtor monitoring companies, which can keep an overview of your customers’ financial situation for you and issue alerts where necessary so you can take pre-emptive action.
Good customer service will be easier to achieve if your accounts receivables systems are automated, reliable, and predictable. An accounting system that issues automatic, early reminders to customers to pay their accounts will thwart the build-up of late payments without the need for you to personally hassle clients about their accounts or issue threats about registering payment defaults with credit reporting agencies. Even late or slow payers can be dealt with in a professional, business-like, and routine manner if a well-functioning credit management system has been set up. After all, even your most difficult clients will appreciate that you are not a charity (unless of course, you are a charity!) and that you need to be cautious about credit in order to preserve a healthy cash flow position for your business.
In fact, providing good customer service depends on you professionally managing your accounts receivables, because a small business will find it difficult to offer good customer service if it is simultaneously struggling to stay afloat due to accumulated bad or slow paid debt—and ultimately, that will affect your customers as well.
Need advice on how you can set up the most effective accounts receivable system, including debt management? Please call us on 1300 136 271 or fill out our online form today for a no-obligation free debt appraisal.