Every business operates with some form of payment terms, typically requiring payment at the time of service or within 15-30 days of invoicing. Most customers adhere to these terms. However, for those who do not, it’s crucial to differentiate between your “Payment Policy” and “Collection Policy.”
June 11, 2024 | Gary Belleville, Licensed Collection Agency Manager
Payment Policy A “Payment Policy” outlines expectations for timely payments, usually requiring minimal enforcement as most customers comply. Here are some pointers to establish an effective Payment Policy:
- Establish a Written Billing Policy: Keep it clear and simple to ensure understanding.
- Create an Accounts Receivable (A/R) Policy Manual/Binder: Useful for training new employees and emphasizes the importance of timely payments. Regularly review, update, and document any changes.
- Offer Multiple Payment Methods: Include electronic forms (Cash App, Venmo, PayPal, Zelle), checks, online bill pay, and cash to increase convenience for customers.
- Staff Training and Education: Ensure staff communicate payment expectations effectively, maintaining a firm yet courteous approach.
Collection Policy When a customer fails to meet your payment terms, their account transitions to the “Collection Policy.” This policy requires a different approach and often involves legal considerations. Here are some recommended pointers:
- Limit Contact Attempts: Determine the number of contacts you will make (no more than two if done manually) and document interactions meticulously.
- Utilize Automated Follow-Up Programs: Consider services like TSI’s ®Accelerator, which use a multi-media approach to determine if a late payer is forgetful or intentionally avoiding payment.
- Rely on Aging Reports: Use these reports to guide your actions rather than relying on feelings. Engage a collection agency for accounts overdue by 60-90 days.
- Prepare a Written Script for Staff: Practice ensures that communication with past-due customers is natural and controlled.
Example Script for Bridging Past-Due Accounts
Using a well-prepared script helps maintain control during conversations with past-due customers. Here’s an example:
Hello, is this Betty Smith?
This is Lisa calling from Bob’s Landscape and Snow Removal. I’m calling regarding the services we provided for _________ in February and March 2024. We show an outstanding balance, and our Accountant asked me to bring your account up to date.
The balance owed is $1,100, and payment is expected. Will you be using a credit or debit card to pay this today?
(If Partial Payment)
Ok, of the $1,100 you owe, how much are you short? So you can pay $550 today? Will you be paying with a credit card or check?
(If Mailing a Check)
Okay, so I can let our Accountant know we should see that check by Monday the 18th? Once we receive your payment, the balance you owe is $550. How many days will it take you to get that to me? (Document, document, document)
This script helps control the conversation, address the customer’s situation, and steer them back to meeting their obligations. Using phrases like “How much are you short?” instead of “How much can you pay?” maintains control and may induce a sense of responsibility in the debtor.
Conclusion
Understanding the distinction between Payment and Collection Policies and having clear procedures for each is crucial for managing past-due accounts. Implementing these strategies can help bridge the gap and improve your business’s cash flow. Remember, not every account will pay, and a reputable collection agency can be a valuable resource when promises are not kept.
Gary Belleville is a Licensed Collection Agency Manager. and Independent Contractor with TSI.
His clients have included Marriott Hotels, Medical and Dental Practices, Banks & Credit Unions, Trades Contractors, and Everything in between. From dress shoes to work boots he’s walked with them all in providing Business Owners the tools to accelerate their cashflow and restore relationships for future business through TSI’s Trademark, Accelerator©, Profit Recovery, and Collections services.
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