Collecting Accounts Receivable from Financially Burdened Customers

There are two kinds of financially distressed customers; one who hides it from you and ignores your attempts to collect the money they owe, and the other kind who comes to you for help. In this blog we discuss the right way work through collecting accounts receivable from the second type of customer.

If a large or repeat customer comes to you to express their current financial problems, don’t turn them away or head right for your phone to call the lawyers. Hear them out.  With how important referral sales, customer service, and reputation have become in earning new business and retaining current customers, building relationships has never been so important. This is a huge opportunity for you to strengthen your relationship and provide the kind of customer service and human compassion that will set you apart from others in your industry.

What do you do next?

Talk with the customer one-on-one, involving lawyers is the last thing you want to do if your goal extends beyond getting paid and into the realm of building the relationship. Have a meaningful conversation to let them know you have payment expectations but you will help come up with a solution to lessen their burden as best you can.

How do you get paid?

A payment plan is a good place to start but before you make any agreements, ask them what they plan to do come up with the capital they need.  For example, what are their plans for reducing overhead costs?  What will they change in their current business model to avoid similar situations in the future? You do not have to give them the third degree, but it is important that they have a solid plan so you can get paid. Your customer will understand this line of questioning since they know you have a business to run too.

If you feel as though they have a solid plan, and since they are obviously being proactive about their situation, then they are likely just going through a rough patch which they will get through and pay what they owe. If this is a long-time or large customer you are likely best served to help them out. When it comes to new customers, you may not want to take the risk. Use your discretion.

How do you avoid this situation to begin with?

While you are willing to work with customers who come to you for help, avoiding the situation completely is better for business. Here are a few ways to avoid offering credit to customers who may be having some financial issues, whether or not they tell you about them. If you have an inkling that a customer is beginning to struggle, take steps to investigate. You can do this by looking into their relationships with lenders or by monitoring their historical payment patterns.

For customers you have done work with in the past, monitoring payment patterns can be the best way to spot their financial problem before it becomes your financial problem. A customer who historically paid early or at least within terms who starts paying later and later, may be having some financial problems and this is a pattern you can only see if you have insight into their past behaviors.

If you are like most companies, looking at customer’s payment history is difficult and tedious since it would involve digging through old spreadsheets, aging reports, and emails. With such a drawn-out process, it is likely that your collectors will push it aside to take care of other important duties as they arise; and who can blame them? Research and analytics are not everyone’s cup of tea. The good news is that there is A/R management software available that will make monitoring payment patterns and reviewing customer payment histories faster and easier through automation and advanced reporting capabilities.

Do you have a credit and collection policy and action plan?

If you do have a credit and collection policy– when was the last time you updated it? A recent study showed that most companies neglect this important task and their policy is doing more harm than good; read more about the study here. Maybe you are updating your policy, but are you including the right information to make it as effective as it can be? Click here to learn the essential elements of a credit and collection policy and plan.

If you do not have a credit and collection policy– it’s time to put one in place. This white paper can show you how.  With a credit policy in place you can:

  •  Ensure continuity in the department in the event that key personnel leave the credit department.
  • Help make sure all customers are treated fairly.
  • Ensure consistent credit decisions are being made.
  • Be used as a training tool for new sales associates and the credit and collections team.
  • Be used to ensure consistency of procedure and execution between the credit department, sales, and management.
  • And more.

As mentioned above, it is important to make sure you are including the right information. The white paper below lays out the steps involved in writing a policy and what you must include for it to be effective.

business credit collection

by Jeanne Lee

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