As is the case with most problems, the most effective way to prevent issues with debt collection is to nip them in the bud before they appear. However, failing this, the next best solution when it comes to B2B collections best practices is to spot the problem at an early stage and address it as quickly as possible. Business owners often hesitate to turn nonpaying clients over to collection agencies. However, if a debt goes uncollected for as long as seven months, the chances of receiving the money owed drops by 50 percent. It’s clear, then, that acting rapidly on unpaid bills is important.
Why Use Contract Terms to Solve the Problem
One way to use contract terms to help address this problem is to include interest terms and late fees within the conditions. This will help guarantee you receive payments within the required time, and it will also help you spot problematic accounts at an early stage. In addition, adding interest terms and late fees to the contract means you can recoup a proportion of the money lost from those late payments. Every business owner knows that when clients pay late, it costs the company money. Whether you must put off making an essential payment and end up paying interest, you need to delay making improvements to the business, or you have simply had to spend valuable time chasing after the payment, it all adds up to lost revenue for your company.
Including Late Fees in The Terms
Including your company’s payment terms in the contract, along with a caveat stating that accounts remaining unpaid within the specified term will be subject to a certain percentage of additional finance charges per month, is an extremely effective way to ensure more clients make payments in a timely manner. As an additional option, you could include an incentive for those clients who do make payments earlier than required. Including a price reduction for clients who make payments within 20 days rather than the standard 30 days, for example, could persuade customers to pay on time.
Another benefit of including incentives for early payment or late fees in the contract terms is you will be able to see more easily if clients are struggling to make payments. Few people are willing to pay a higher amount than is necessary for services received. Therefore, if a customer is routinely paying at 30 days rather than 20 when you have offered an incentive for early payment, this suggests he or she could be having difficulties in making a payment. Of course, before including late fees in your terms, you need to research the rules for your state. Some states have restrictions on how much you are legally allowed to charge.
Facilitating Payments as Much as Possible
Whether you include late fees and incentives in your contract terms, making payments as easy as possible is important to ensure that as many clients as possible pay on time. One way of facilitating payment is to offer convenient online methods so clients can use their preferred forms of payment in a simpler way rather than having to write out paper checks. Evidence has shown that when clients find it quick and easy to pay the amounts they owe, they are more likely to pay on time. BillingTree’s IVR systems and payment portals represent the ideal solution to speeding up your company’s cash flow.
Contacting clients immediately when you notice they are overdue in their payments is always the recommended approach when it comes to B2B collections best practices. Of course, it is always important to take client relationships into account. In some cases, late fees could damage relationships that have been built up over an extended period. Therefore, waiving the charges may make sense. However, in most cases, a paper trail documenting the client’s responsibility for paying late fees is extremely beneficial in helping both you and any collection agency working on your behalf to collect the initial sums owed. In basic terms, you will enjoy greater leverage.