Debtor Management

You need to have a debtor management process in place to ensure overdue accounts are followed up as soon as they become overdue.

Your process should cover:

  • Exactly when debtors are to be followed up, e.g. the day after payment is due
  • How often debtors are to be followed up
  • Alternative payment methods available
  • Use of ‘copy’ invoices or an ‘overdue’ invoice layout for customers who need to be rehabilitated
  • Use of one-off payment terms or special pricing terms based on current debt

Review your debtors

Ensure that your debtor information is up to date and that all payments have been reconciled. Ensure that for each debtor you’re clear on:

  • How much is outstanding
  • When the account was due
  • Whether there has been any variation to the payment terms
  • Who the contact person is
  • If a business, that authorised the work
  • Details of the work completed

When you have all this information, prioritise the follow up of your debtors, starting with those most overdue.

Remember that some businesses will be more affected by the impact of Covid-19 than others, so be mindful of this when following up and requesting payment.

Record all contact with debtors

Ensure you have a process for recording all contact you have with your customers relating to overdue payment requests. Record specific details in your CRM or Practice Management system, including:

  • Time and date of contact
  • Contact method, e.g. phone call, email, letter
  • Outcome of contact e.g. agreed to pay X amount on X date, entered into instalment arrangement, left a message on mobile phone as no answer, etc.

Schedule all required follow up in a diary. For example, if a message is left on the customer’s phone, schedule a follow-up call for the next day. If the customer agrees to make a payment on a specific date, set aside time in the diary to check to make sure the payment has gone through on that date.

Initial contact

Customers with overdue accounts must be followed up as soon as they become overdue. Ideally, this will be the day following the due date.

At this time, everyone is being inundated with emails, so it’s easy for your payment request or reminder to get lost amongst the flood of emails or be deleted. For this reason, we recommend your initial contact is via phone call.

It’s important to plan what you’ll say and how to respond to what the customer says. The objective is to find out how your customer is, show empathy during these difficult times and then respectfully position a request for payment.

Empathy, directness and professionalism are key.

Privacy considerations

If the customer doesn’t answer the phone and you need to leave a message, you must ensure you understand the law surrounding privacy.

If leaving a message on an individual’s landline, you must not leave any information about the debt owed. You may only leave your name and contact details.

If leaving a message on an individual’s mobile phone, you can mention the debt only if the person’s voicemail message states their name.

If contacting a company, only mention information about the debt if you’re calling the contact person’s direct extension, not the company’s main line.

Remember, it only takes one slip to turn a simple call into a major problem if you don’t abide by privacy rules

Subsequent follow up

If the customer hasn’t paid by the date they agreed to make payment, follow them up immediately with a phone call. Find out why they haven’t paid and discuss alternative arrangements. Give them another chance to settle their debt. Remember to remain empathetic, but gain commitment to ensure payment is made.

If the customer still fails to pay, consider your options. If they genuinely can’t make a payment, consider whether you could accept part payment in full and final settlement of their debt. It’s important to retain the relationship you have with your customers in the future. Taking enforcement action against customers at this time may cause irreparable damage to your relationship.

Referral to an external debt collection agency

It may be reasonable to refer certain customers to an external debt collection agency if they repeatedly fail to pay or respond to your requests for payment. If a customer is unable to make payment, it seems pointless referring the account to an external agency. In addition, you need to consider the potential damage you may do to your brand if you appear to be behaving aggressively in such extreme times.

For more strategies on how to maximise prompt payment and credit management, download our KMT Guide to Credit Management for free.

Contact KMT accountants now for further assistance with your cashflow or credit management!

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.