Past due invoices. 2/3 of American small businesses have them. In fact, it’s often estimated that 20% of all invoices will be paid late- so it’s a fact of business-life you can count on. Here how to make sure the problem doesn’t get worse, aka the dreaded, forgotten-about invoice.
When a customer is late with their payment, approaching them with the appropriate communication process can expedite the reconciliation of their past due invoice. Before you send out your next invoice- remember that there are quite a few preventative & proactive actions you can take to reduce the likelihood of a past due invoices to begin with! Most importantly, don’t forget that the number one, easiest way to collect on past due invoices is by using an AR Management app (like the FG Receivables Manager!).
Past Due Invoice Communication –
The In-House Collections Process
When it comes to collections communication, time is of the essence. The more time passes that past invoices are past due, the likelihood of a successful collection decreases.
As an example: an invoice that is 90 days past has a 73% chance of successful collection, while an invoice that is 6 months past due has a 44% chance of successful collection, and an invoice that goes unpaid for over a year only has a 25.3% chance of successful collection.
The following collections communication steps tend to yield the highest success rates:
- A payment reminder email and a simultaneous phone call, alerting them to the email.
- Another, follow up phone call, directing to the payment reminder email
- An additional payment reminder and simultaneous phone call for each past due bucket (30 days, 60 days, 90 days, 120 days).
- A final letter of demand
- A final phone call
- Hand over to collections
When calling a customer with a past due invoice, having a call script prepared ahead of time will allow you maintain greater focus, and control of the conversation. It will also reduce your feelings of anxiety and nervousness. Remain calm and polite, this increases the likelihood of finding a resolution, and successfully collecting on your past due invoice.
Keys to Successful Collections Email Communication
You’ll be more likely to fully recover payment on the past due invoice if you follow these collection communication guidelines:
- Contact the customer immediately after the invoice is past due, and immediately as the invoice enters each stage of delinquency (60 days past due, 90 days past due, 120 days past due).
- Include the appropriate business’ leadership in your correspondence after the initial payment reminder
- Include details about your previous correspondence
- Include the invoice
- Handle each past due invoice separately
- Use the version of your business’ name that is most familiar to the company
- Use your work email
- Call to notify them about the email, or vice versa
- Be polite, empathetic, and understanding
- Regularly update your contact records to reflect any contact detail changes, and the appropriate point of contact
- Record your phone calls, if possible
- Obtain written record of any agreements or payment plan modifications
- Use a Call Script
- Use a collections email template
- Use different email templates for each category of past due invoices
Keeping track of which customers have not paid and why requires a great deal of personalization and fitness. Automating reminders can be difficult when each customer has a unique situation. Recording and tracking all conversations and correspondence is the most important part of collections communication, and leads to dramatically improved success rate. Over time, diligence in communication will reduce repeat offenders, and leave you with a healthier AR. By keeping accurate records you will be able to see if there is a consistent pattern of lateness for some customers, or a particular effective communication technique When using a receivable management softwares can provide analysis of this type, and would make collection efforts more efficient.
Keys to Successful Collection Phone Calls
The first step is to phone them and follow a script so that you are in control of the conversation. Record the phone call if possible (note: in most states, you will have to inform the individual that they are being recorded). If you don’t have the ability to record your call then you need to take detailed notes of what the customer said and when you can expect payment. It’s very important to follow up via a written record (email), detailing all that was decided upon during the phone conversation, and ask them to confirm. The more detailed proof of any agreements of correspondence you have, the more likely it is that your customer will pay the past due invoice.
Successful Collections Phone Calls:
- Begin with an ice breaker, including some small talk
- Reiterate that the business relationship is important to you
- Explain that you have plans to improve your business, and need to monitor your income closely to achieve those business goals
- Include the date the invoice relates to
- Include a description of the invoice
- Include the invoice number
- Include the date the invoice was sent
- Include the the date the invoice was due due
- Refer to your payment policies
- Get your customer to commit to a specific date
- Get your customer to acknowledge the past due nature of their invoice (this will eliminate any wiggle room for excuses down the road)
Want more help with your AR Management? We’ve got a whole section of the blog to help you out- all Receivables Management posts.