Debt Collecting System & Structure

Are your debtors crippling your cashflow and you are struggling with chasing payments in from your customers? You could minimise the risk of bad debts by collecting them much earlier. So why not standardise your procedures and follow our simple step by step guide to debt collecting.

We at K A FARR & CO have applied these principles & reduced our debt by 50%

Step 1 – Reduce Terms & Review

  • Stop sending end of month statements – they cost you time, money and resources and are not necessary.
  • Decide on your terms, eg Cash on delivery (COD), 14, 30 days, (you may decide to give your best ‘A’ customers longer) invoiced at the time of delivery (no matter the time of the month), and PUT THESE TERMS ON YOUR INVOICES together with details of how to pay, eg bank details for direct payment.
  • Remember – if a customer is worried about terms, they are usually NOT worried about WHEN they have to pay rather HOW they are going to pay. If this is the case aren’t they a BAD credit risk?

Step 2 – Choose The Team Member Responsible – NOT YOU!

  • Separating the debt collection process from the business owner achieves better results and frees up your time to work on your business.
  • Stress the importance of the role to the team member and its necessity to be done as a continual process and promise to support them.

Step 3 – Have A Clear “Aged Debt” Report

  • Any good accounting software will have this function, or create your own simple spreadsheet (Excel)
  • This report will show the accounts overdue and by how much. Often they are defaulted at Current 0 – 30, 30 – 60 days, 60 – 90 days and greater than 90 days. Set the report to match your terms.
  • Have this report printed at LEAST weekly (if not daily) by the person responsible.
  • Set targets. For example: over a period of time, how many accounts overdue in each category and the amount acceptable (obviously 0 is the target however, it takes time to reduce the list)

Step 4 – Be Prepared

  • Have all the info you need. (Amounts, invoice numbers (or a copy of the invoice), contacts, notes from previous calls etc).
  • Make detailed notes of any conversations and promises (names, dates, times, what was promised etc.).
  • Pick a time daily or weekly for the calls to be made – block out the time. No interruptions.
  • Make it AS EASY AS POSSIBLE for customers to pay, eg debit/credit card (consider getting a machine if not already), direct bank payment (have bank details to hand)

Step 5 – Set your Rules

Know exactly what to say:

  • Develop a script for each call
  • Develop a standard letter for sending after 3 calls

If you would like to see our K A Farr & Co standard call script & standard letters please contact us & we will email them to you.

Step 6 – Set The Tone

Use the “3 F’s” – Firm, Fair & Friendly

  • Don’t get into an emotional argument – stick to the facts.
  • If someone has a problem, take all the details and get the person responsible to sort it out ASAP

  • If the customer becomes heated, rude or abusive, exit the call (sometimes this may even mean hanging up) and refer the problem to the Boss.
      – Your team members are not being paid to be abused – they are just doing a job.
      – The boss must ring up this person and challenge this person ASAP. Insist on an apology to your team member.
      – You must support your Team. To avoid this problem in the future you may need to change these particular customers terms to COD or choose not to deal with them at all.

Step 7 – Follow The Contact Schedule

  • Consistency of contact is the key
  • Do what you promise

Step 8 – Don’t Avoid The Problem

  • Get on with it
  • Remember under contract law, at the time of sale they have agreed to pay for your product or service on the terms you specified. If they haven’t they have broken the contract.
  • Some customers may be under significant financial pressure either on a personal or business front. A payment solution may need to be arranged:
      – The customer needs to admit they need help to pay.
      – The right blend of empathy and responsibility is needed.
      – Get the payment plan in writing and signed off by both parties.
      – It is better to help someone through and be paid than to alienate them and not be paid.
  • At a certain stage of the process (usually after the 3rd call) be prepared to put the customer on “Stop Supply”.
  • Enforce it! Do not allow customers to rack up more debt if they are bad payers – teach them your way of doing business.

Note: it is surprising how many businesses will pay the bill when they need something.

Step 9 – Review

  • Regularly review the call sheets & meet with your team to identify businesses that are habitual bad payers
  • Put them on COD (At least reduce their terms). Choose NOT to deal with them.

So go ahead, try implementing this TODAY and you too could reduce your debt & improve your cash flow overnight – it really is THAT easy!

For more information or to discuss this in more detail call us on 01704 211434 or email