Curing Slow Pay Customers

Training Chronic Slow Paying Customers 

Debtor psychology is that if their debt is 180-360 days old, they figure they’ll never have to pay it, certainly not the full amount. Chronic slow-paying customers can be re-trained to be profitable, long-term relationships, but they require constant attention so that they do not age out to the point they become bad debts. 

If you allow customers to pay late, your cash flow suffers.

Past-due customers may order from your competitors rather than risk your asking them to pay up.

If you ignore delinquencies too long, they will become your uncollectible ex-customers.  You lose both ways.

Collectibility Decreases With Age

This chart is an excellent reminder to address slow pays more quickly. Not every debt is collectible, but, on average, debts are 200% more likely to be collected if assigned for collection at 90 days vs. 360 days.

8 Step Program to Improve Collections and Cash Flow

1. Prepare a customer credit and collection letter with your business terms, and give it to all customers in writing.
2. Establish tracking metrics including Days Sales Outstanding (DSO), Average Days Delinquent (ADD, and Collection Effectiveness Index (CEI)) reach targets and issue reports to your CFO every month on results and steps taken.,
3. Customers will pay the way they are “trained” to pay, if they know what you expect and that you will follow through when they don’t. Start consistent collection efforts at the due date and in the case of large invoices, even before the due date.
4. Predictive collection software will analyze customers by risk and past payment habits and set the collection sequence accordingly, with escalations to collection management when called for.
5. If you use automated accounts receivable and collection software, the routine collection functions can be done without human intervention, such as collection emails.
6. Email your invoices to smaller customers with a payment link (below)
7. Make it easy for them to pay you by including links to a payment portal (e-check, credit card, ACH) in every invoice transmittal and collection email.
8. Do not let accounts get so old before assigning them to a collection agency that you end up with a write-off. Creditors often delay placing with an agency because they are concerned about the collection fee instead of focusing on the principal.

Internal Collection Policy Guidelines Example

The best way to avoid debt-placement gridlock and the resulting loss is by establishing written collection guidelines and sticking to them. Here’s a simple example:

10 Days Late:  Collection email #1 is sent when the customer is ten days past due.

20 Days Late: If the customer has not responded or made a promise to pay and followed through on it, a call will be made, supported by email #2.

30 Days Late: This communication will advise the customer we need payment in 15 days or we will have to hold orders. This is reinforced with email #3.

60 Days Late: The account is escalated to the manager, who will make a “final demand” before placement with a collection agency. This is reinforced with email #4.

75 Days Late:  If no satisfactory resolution, Certified Letter #1 will be mailed, 

90 Days Late: The account is placed with the collection agency.

Read more about late payments and delinquencies here.

Note: Smyyth’s affiliate, Leib Solutions LLC, is a highly-rated commercial collection agency.

For further reading, take a look at our post about the Statute of Limitations for Contract Debts.