Show me the money! 7 steps to collecting your debts

Another day passes and another day they still owe you money. You’ve worked hard to give your customers the best service possible. How do they repay you? By not paying their bill. In this article, we share the 7 steps to collecting your debts. We apply these steps in our own plumbing business.

Step 1: Issue the customer with an invoice

The invoice must be sent accurately — with enough detail to explain the job at hand —including methods of payment and due date (normally 7 – 30 days if strata or real estate etc.). Remember to include reference to the original Work Order number on the invoice. This is proof approval was granted. Payment is obligatory.

Step 2: Reconcile bank statement

Stay vigilant to any payments coming in. Check the bank statement between each and every step. This way, you can guarantee you’re sending out a statement that’s updated and accurate.

Step 3: Send statement in the mail (first day of month for real estate and strata)

Send statements on the first day of the month. Send them to your contact (not accounts) as this is who you have the relationship with, unless otherwise. The trick is to send it on coloured paper. Think about that full in-tray with layers and layers of white. We want to stand out! The statement will include the methods of payment available, printed clearly at the bottom of the page.

Step 4: Follow-up phone call/s

Make a follow-up call to your contact three days after sending the statement. Ask questions that make them ‘think’, such as:

  • “What seems to be the issue? We never had difficulty with your account in the past.”
  • “When can we expect payment?”

If they say they are having trouble paying the account; be understanding but firm. Collect as much as you can today with a specific date set for final payment. We send an updated invoice, if this occurs. Your contact may say you need to speak with accounts. They are going to become your best friend.
You need to call them every week. Religiously. Be the friendly pest. Guess whose account they’ll pay simply to stop you from calling!

Step 5: Send three (3) reminder letters

Send the first reminder letter along with a copy of the outstanding invoice clearly marked with the “COPY” stamp.

Since the account cannot be considered seriously overdue, the tone of the letter should be moderate. Over the course of time, the letters should establish a firmer tone so the customer is made aware of the seriousness of the situation.

If the customer has not paid within 7 days, issue a second letter. If the customer has not paid 7 days after the second letter, issue a third.

Step 6: Send a final collection letter

If your customer still has not paid, they’re issued with the final collection letter before taking further action. It is pretty clear at this point that they should settle their debts or things will get serious. Note: moving to step 7 there’s a serious risk of losing the work provided from this company. Are you prepared to lose them? Can you resolve this by calling every week?

Step 7: Take further action

If the customer still has not paid, you need to consider how much time and effort you want to put into chasing the debt. If the outstanding amount is say $100-150, it is probably not worth it. If you decide to take it further, consider using the following courses of action:

  • Collection agencies

Collection agencies are businesses established to collect past due accounts receivable on behalf of creditors at a fee. Collection agencies have superior persuasive collection techniques whilst creditors are usually anxious to clear outstanding invoices – a winning combo.

  • Courts

The matter may  be resolved in a small claims court if the amount owed is small. For larger amounts, you may have to file suit to collect through a lawyer. In either case, you are faced with a costly and time-consuming procedure.

Being clear about your payment methods at the start will help avoid the time-consuming and costly processes of debt collection.

What’s next?

  1. Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
  2. Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.