One of the biggest challenges for small businesses nationwide is dealing with debt recovery. As small businesses, chasing down late payments, or worse, clients who suddenly disappear when an invoice comes due, can cost thousands.
Late payments cost small businesses almost $3 trillion annually, a loss that negatively impacts homegrown companies. And these numbers don’t consider the amount of time lost when businesses have to chase down debtors.
However, a late payment doesn’t have to become an overwhelming problem; with modern technology, data-driven solutions, and staying up-to-date with local laws and regulations, missed invoices can become a thing of the past.
Here are six innovative debt recovery strategies that help save small businesses.
1. Understand the laws
Before tasking employees to chase down late payments, ensure your business complies with all laws and regulations. The Federal Trade Commission is the branch that governs most debt recovery situations, and it’s essential to follow it closely. Consult a lawyer and your legal department before taking any larger action if necessary. Make sure that debt recovery practices adhere to the law and that any attempt to collect a debt or late payment is handled professionally.
2. Establish clear payment policies
One of the most effective tools businesses can use when dealing with late payments is to head off the problem before it begins. For companies, this starts with a clear contract that specifies payment terms and late payment policies and has clear deadlines. Businesses should also clarify any interest or late fees accrued for non-payment. Not only will this help clients understand payment deadlines and policies, but employees will also be able to assist clients better when there’s an issue.
3. Communicate with clients
Dealing with late payments can be sticky and should be handled tactfully and clearly. Communicate with clients throughout the process. First, offer clients a gentle reminder about the payment. Second, try to understand why there’s an issue with the payment and see if a rescheduled date could help. If there’s an issue with a possible late payment, contact the client for a discussion to see if a payment plan can be agreed upon.
Always treat clients respectfully and patiently, as they may face difficult situations. Where possible, always try to keep the business relationship in good standing.
4. Offer early payment incentives
Creating discounts or offering rewards for early payment can help encourage clients to pay on time. Even a small discount can offer big rewards if your company struggles with non-payment. A 2% discount might not seem like much, but many companies will choose to take the discount; this simple technique can save businesses thousands of dollars by preventing debt collection services and time wasted from chasing down client payments.
5. Choose legal action when necessary
Unfortunately, there will be times when businesses need to pursue legal action to receive payment. While this is the least-desirable outcome, small businesses should feel empowered to seek restitution when necessary.
Meet with a lawyer and decide the best course of action; often, the amount can be settled in a small claims court. Keep a clear written record of all communication with the client to ensure that your documentation is up-to-date.
6. Utilize technology
Gone are the days of old spreadsheets and manually filing invoices; modern technology offers dozens of affordable and powerful solutions when tracking and receiving payments. Data-driven AI receivable management systems can help companies monitor accounts, ensure clients are paid and identify issues before they become a larger problem. These management systems can even identify high-risk accounts and predict client payments.
In today’s fast-paced business world, ensure your company follows best practices for debt management. Businesses can ensure complete debt recovery by communicating clearly with clients, developing clear payment procedures, and investing in modern technology.