Unpaid invoices slow cash flow and reduce inventory turnover. This in turn can harm your company’s credit ratings and tarnish your company’s reputation. The sooner you take action, the more likely you are to get paid.
In fact, this action should begin before an invoice goes unpaid: be sure to send invoices promptly and set up your accounting system to flag overdue accounts! An invoicing oversight that seems small can sometimes result in big problems with payment.
A few other things to check as you initiate action include:
- Have you sent your invoice to the right person with the right address?
- Was the contract signed by both parties before delivery and did you stipulate payments terms in it? Have you mentioned them again in the invoice?
It's best to tackle overdue invoices within the first 45 days following the due date, because the longer an invoice remains outstanding, the more difficult it is to collect.
Given that most terms request payment within 30 days, if an invoice remains unpaid for 60 days, you can consider it has become a bad debt. And you will have to resort to commercial debt collection.
But before bringing in outside help, there are a few things you can try on your own to collect a business debt.
However, there are no hard-and-fast rules on business debt collection practices. Your approach will depend on your history with each customer and their reasons for being overdue. Remember, customers may not contact you first.
Before launching commercial debt collection, try the do-it-yourself approach first. Reach out to the customer and eliminate the obvious, such as:
- There was a problem with your invoice: the customer never received it, or the invoice was unclear or didn’t comply with the customer’s requirements.
- The goods were never delivered or went to the wrong address.
- Your customer has a glitch with their accounting or payment systems.
- Your customer has a cash flow problem (in which case, he or she may be willing to abide by a repayment schedule).
Telephone calls have proven to be the most effective business debt collection technique. By “selling yourself” to the customer, you have a better chance of ensuring your invoices are treated as a priority and that your payments are always top of the list.
Sending a business debt collection letter
Another business debt collection practice you can employ yourself is the business debt collection letter in which you remind the customer that your invoice remains unpaid, request prompt payment and advise of more stringent action to come in the event of non-payment.
The letter should be short and to the point; your tone firm but polite – you don’t want to disrupt relations with your customer! Check out our advice on writing a business debt collection letter in our articles: & .
If your efforts to settle with your customer using your own resources – the telephone call, the business debt collection letter – fail, you may start thinking it’s time to take action. But if the amount owed is so small that collecting would not be worth the time and money, you might consider walking away.
Should you walk away from an unpaid invoice?
Business debt collection involves not just the amount of money owed, but customer relations and the time and energy you will spend collecting the debt.
Sometimes it’s better to write off small amounts to preserve an important business relationship. Ask yourself if it’s worth chasing €500 when it’s going to cost more to collect the debt?
Or if you’re chasing a larger amount from a good customer, writing off late payment penalties could be in your best interests if you want to maintain good relations with that customer.
If none of this works, this would be the time to consider soliciting other business debt collection practices such as outside help.
These agencies are in business to collect commercial debts on behalf of a wide variety of creditors and specialise in collecting the balance in full from the debtor while trying to avoid litigation. In most cases, the business debt collection agency does not own the debt. Your business still owns and controls the amount owed by your customer and the agency works as a middleman between you and your customer, taking payment for services as a percentage of the amount collected.
In addition, agencies may charge for their services in a variety of way: as a flat fee per debt collected, by the time involved in collecting, etc. Be sure to ask about these terms before engaging a debt collection agency.
Most agencies use phone calls and letters and follow these steps:
- They reach the customer directly and request payment in full. Sometimes a phone call or letter to your customer from a business debt collection agency will in itself prompt payment.
- If payment in full is not possible, the business debt collection agency will try to negotiate a payment plan with your approval.
- If, after 180 days, payment has not been made – in full or through a payment agreement – the agency can initiate legal action to collect the amount owed.
Filing suit against a debtor should be a last resort. A judgment is time-consuming, costly, and often worthless unless executed properly: various laws govern debt collection practices in most countries.
(or called "") safeguards your cash flow by covering your receivables due within 12 months against unexpected commercial and political risks. If your customers become insolvent or fall into protracted default, you are indemnified for the value of goods or services you have delivered. Learn more from our article - .
At Allianz Trade, we specialise in and . Because we provide debt collection services as part of our trade credit insurance offering, we can collect your money and help you avoid more s before they happen.
Our global credit intelligence network employs hundreds of commercial debt collection professionals worldwide who have a deep understanding of debt collection complexities and expertise in local practices. We have the skills and insights necessary to recover your money without jeopardising your trading relationships.