Show Me The Money! Struggling to Collect Payment from Customers? Discover The 7 Steps We Take in Our Own Business to Chase Debts…

Another day passes and another day they STILL owe you money… it’s frustrating. You’ve worked hard to give your customers the best service possible and how do they repay you? By not paying their bill. Argghhhh!

You’ve called them over and over again with nothing but an empty promise of “we’ll pay soon”, or worse. You do nothing. Well, there’s a better way to collect outstanding debts that guarantees you’ll receive the money that is rightfully yours.

Firstly, I want to start by saying we collect payment from residential customers on site at the end of the job. ALWAYS. No ‘ifs’ or ‘buts’. The only time the below seven steps are followed are with our other customers; like real estate and strata.

Let’s take a look at the seven steps we take to collect debt in our own plumbing business…

Step1: Customer issued 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 that approval was granted and hence payment is obligatory.

Step 2: Reconcile Bank Statement
You need to stay vigilant to any payments that are coming in. Ensure to check the bank statement between each and every step. In this way, you can guarantee you are sending out a statement that is updated and accurate.

Step 3: Send statement in the mail (First day of month for real estate and strata)
Statements are sent on the first day of the month. Send them to your contact (not accounts) as this is who you have the relationship with, unless you are otherwise. The trick here 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 includes the methods of payment available, which is printed clearly at the bottom of the page.

Step 4: Follow-up Phone Call/s

A follow-up call to your contact should be made 3 days after sending the statement to ensure the information has been received. Make sure you 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 in 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 will 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 that 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 are 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 is 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.

There is simply one way to best avoid the time consuming and costly processes of debt collection and that’s to be clear about your payment methods from the start. Set the rules early with your team and customers about deposits before you start, full payment on completion, strict payment terms for invoice customers and follow our 7 steps to debt recovery. Be firm but friendly. It will see you recover the money you are owed.

Interested to learn more about the systems and processes we use in our own trade business? Join us at our live event The Future Tradie. CLICK HERE for more details…