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home | Credit Mgr's Letter | How to Overcome Five Common Obstacle . . .

How to Overcome Five Common Obstacles to Getting Paid

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Bad debtors often have a method to their badness. Once you figure out what it is, you can get them to reform their ways and pay your company on time. Here are five types of late-paying customers--and some strategies for getting them to speed up payment.

1. The casual payer. Many small companies have casual paying procedures. For instance, often a clerk will toss all the bills and invoices into a drawer to be paid whenever it's convenient.

One solution is to make sure your collection letter gets noticed. Otherwise, with a customer like this, your reminder may also get stashed away, or end up in the "circular file."

Your move >> Try a bold stamp on the invoice with a message such as "SAVE $$$ FOR YOUR COMPANY--PAY NOW AND GET A 10% DISCOUNT!"

Payoff: >> Getting your customer's attention with the first notice means you won't get lost in the crowd.

2. The confused customer. Honest but a bit unsure may describe the customer who has misunderstood your credit terms from the outset. Because of this uncertainty, the customer simply delays paying. And chances are you won't find out about this until you call or write the customer to find out where payment is.

Your move >> The first time out, assume responsibility for the misunderstanding. Explain the terms of sale once more. Then tell the customer you'll be expecting payment by a certain date.

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3. The can't-be-bothered customer. This kind of customer puts off paying one small balance after another, waiting until the amount due is larger. For this person, "It costs too much to write a check for such a small amount."

Unfortunately, you often can't afford to give these small amounts the special attention that would bring in payment.

Your move >> Make it standard procedure that whenever a delinquent account has a balance under a certain amount, the next invoice carries this message: "We're sure you like even small amounts due to be paid promptly. Why not treat us the same when it's your turn to pay?"

4. The I'll-do-it-my-way customer. An especially tough collection problem is posed by the customer who uses the most liberal payment terms as a guide in paying all its creditors.

For example, let's say your customer has found a vendor who gives net 60-day terms. The customer may then want your company to also wait a full 60 days, even though your company requires payment after 30 days. When that happens, the customer is dictating the terms of the credit agreement, not you.

Your move >> Get on the phone and remind the customer--in no uncertain terms--that your company requires payment within the agreed-upon time.

5. The perennial discounter. This customer routinely pays after the discount period, but claims your early payment break anyway. Your decision on what to do depends in part on your relationship with the customer.

Your move >> If you decide to let the customer take an unearned discount, keep the situation under control with a letter that clearly spells out the fact that this is the last time your company will permit the customer to do this.

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter.

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