Delinquent accounts – sounds like something for the juvenile system, doesn’t it? Would it shock you to know that in 2011 approximately two thirds of all Australian trade credit falls outside the standard 30 day terms?*
So what does this mean to the average business? Quite simply, that you’re waiting to get paid, and while you’re waiting, you can’t invest that missing money into gaining further revenue or improvement for your own business. Or else you aren’t paying your own bills because you’re waiting on your customer to pay theirs.
So, what do you do if an account falls in arrears?
If you’ve followed your collection process and you’ve sent your reminder notices and still haven’t received payment for your goods or services, and it doesn’t look like your customer is budging on that any time soon, then maybe it’s time to take the next step. This isn’t personal, this is business, and if you don’t mind this portion of the business, you may lose it.
Just as you have a credit application process, documented terms and conditions, and collection process, and your reminder process, it’s just as important to have a clear procedure for delinquent accounts and further escalation.
Observe your trading terms and enforce them.
For example, if your terms state payment in 30 days, and the account hasn’t been paid after 40 days, then it’s time for the account to be placed on credit hold. You’re not mean. You’re not aggressive, you’re not wrong.
This action shouldn’t take your customer by surprise – they’ve agreed to the terms, after all. They know the consequences of failure to pay on time. If you’ve been following your collection process of regular contact with your customer, then it will be obvious to them why you are taking this action.
Communicate the action.
When you do put your customer on hold, you need to communicate it to all relevant parties. This means informing the appropriate account manager, and definitely the customer – think of those uncomfortable, embarrassing moments when you try to use your credit card and it’s declined. Nobody likes a nasty surprise.
Some account systems can be set up with an automated email, but our recommendation is that initial notice is preferably done via the phone. Just as your collection process has a high emphasis on phone contact, so too should your delinquency process. If you feel there isn’t appropriate focus being paid to your account, escalate this notice up the customer’s tree – try for their account manager or the CFO where possible. At all times, though, keep your lines of communication open, and listen to your customer.
Get it in writing.
We’ve all heard it. The cheque is in the mail. Or, sure, I’ll organise it this afternoon. Whatever the arrangements are, if a customer has agreed to take any action, ensure these arrangements are in writing and agreed to by both parties. Just as with your terms and conditions, though, make sure you enforce these new arrangements. If you don’t, you run the risk of being fobbed off when you attempt to follow up again, or your customer may use further delaying tactics.
If all else fails, escalate to your legal team.
Have an issue with delinquent accounts? Contact the Admin Plus team for further information on our services.
*(Source: Dun & Bradstreet Trade Payments Analysis)