If your business model includes granting credit to customers or accepting payment via recurring credit card charges, you need to ensure that you’re prepared for the unexpected. Inevitably, a customer might fail to pay on time, provide you with their updated credit card information, or their check bounces. So, what can a business owner do to spend as little time chasing these items while still collecting the cash? We have four suggestions: re-examine your credit card policy, be proactive, manage payment failures and disputes quickly, and develop a foolproof collections policy.
Re-examine your credit policy
Are you collecting credit card payments for goods or services retroactively? If so, is there any way you can have credit customers pay upfront? For example, perhaps you can collect a deposit to minimize your risk. Alternatively, you could request final payment right before delivering the final product. Or, maybe you can convert credit terms to a layaway situation, similar to the standard retail practice.
The best way to speed up collections is to change your payment terms if at all possible.
Be proactive
To avoid a significant delay in payment, send your customers proactive email reminders before the payment is due. You may also want to consider calling anyone who hasn’t been timely with their payment in the past before their next due date. If a customer is late with a payment, respond quickly.
If the customer pays by credit card, monitor credit card expiration dates, and send reminders to update the card before it expires.
Lastly, you’ll want to ensure that your business’s online support portal allows customers to easily update their credit card information at any time. Again, automating this process will save you a ton of time.
Payment failures and disputes
Inevitably, a customer’s payment will fail, whether it’s an automatic credit card payment, ACH withdrawal, or failed/bounced check. As a business owner, you need to have solid procedures for you or your employees to process these exceptions.
Before any of the above payment failures occurs, make sure your shopping cart, merchant account, or gateway processor is set up to notify you of the failure. When it happens, contact the customer right away to correct the situation. Assess any extra fees and flag the customer account if you want to place a hold on their account or restrict future payment or credit options available to them.
You may also have customers that report disputes to their credit card company. There is always a tight deadline associated with these transactions, so be sure to respond timely and make sure you have all of the documentation you need at the time of sale if this comes up.
Develop solid collections processes
If the payment is late, start your collections routine. Send out friendly reminders at first, then get progressively aggressive as the payment grows later and later.
Follow-up steps are critical. Make sure your customer is getting your notifications, and give them a call before deciding to take legal steps with them.
Finally, if necessary, turn the payment over to a collections agency to impact the customer’s credit report and possibly collect your money.
We hope you do not have too much of this activity in your business. But if you do, being proactive is one of the best ways to reduce it. Check to see if you have all the processes described above in place to handle collections in your business so that your cash continues to flow.