Collecting past due debts from your customers and clients is an unfortunate part of the accounts receivable process. It's 'unfortunate' because not every customer will pay on time but it doesn't have to be contentious or ugly. Your client will be aware of what they owe, when they owe and how to pay via your contract agreement. But even beyond that, there are steps you can take to ensure payment from your collections efforts.
Over the course of 2020, businesses had to make adjustments to survive. For some, it was a matter of moving employees to remote work or pivoting to a new business strategy. For others, the effect of COVID-19 meant halting plans, shutting down, or laying off employees. Manufacturers were unable to move products due to global supply chain challenges and small-to-medium businesses faced delayed payments. With states lifting mandates and vaccines in arms, there seems to be a light at the end of the tunnel.
Are your client payments still affected by the COVID-19 pandemic?
Whether you're managing a growing accounts receivable department or you're an A/R department of one, it's important to measure the effectiveness of your efforts. Is your A/R team doing all of the right things to get paid consistently and on time? Read further to evaluate your department's effectiveness and considerations to get even better.
How effective is your business' accounts receivable department?
Commercial debt recovery, also called corporate collections or B2B debt collections, is used specifically to recover delinquent business customer accounts. Not to be confused with consumer debt collections where the delinquent account holder is an individual, commercial debts refer only to businesses. To clear up any confusion, we'll cover what's different and why.
What types of businesses use commercial debt recovery?
Setting up any sort of retainer or regular payments seems to be a great business model. Subscribers to software-as-a-service are auto-billed or auto-renewed regularly, funding any updates to the product and keeping cash flowing. The challenges arise with missed payments or non-paying customers.
Is there a good way to collect from non-paying SaaS customers?
If your business has sent bad debt accounts off to a collections agency, you likely have questions about recovering that debt. Typically, commercial collections agencies only charge a fee if they're able to collect. The agency should also be transparent about the collections process and the documentation along the way. But you may also be wondering how long they'll work on your behalf before you take the case to court.
How Long Can a Collection Agency Attempt to Collect Business Debts?
Chasing down an unpaid invoice can take away time and resources that could be better served elsewhere in your business. It's important to understand when and how to follow-up on invoices. Obviously you don't want to appear too needy but you don't want your clients getting away with paying late or not at all, either. And when should you get help from a professional collections service?
When exactly is the best time to send an invoice to third party collections?
The internet allows for businesses to sell the use of software (and hardware) and revenue is collected either yearly or monthly as a subscription service. The as-a-service or subscription business model is sustainable as long as payments are received. Because client retention is very important to this business model, debt collections must be handled with business relationships in mind.
Here are four things to consider when sending SaaS clients to debt collections.
As if it's not challenging enough to deal with late paying clients, the pandemic and the holiday season can add more stress. Your business may be working to resolve late payments to close out your year. Your clients may be struggling with cash flow shortages due to the pandemic. Is there a gentle-yet-firm way to ask that your invoices are paid on time?
Resolve late payments during a pandemic and the holidays by using these opportunities to connect.
The pandemic has unfortunately hit many businesses right where it hurts. Economists have discovered a current proliferation of businesses who may actually already be "dead inside". Zombie companies earn just enough money to scrape by, acquiring more debt along the way and relying on bailouts to keep going. The problem is that they're unable to afford the cost of the debt and are a high risk to investors. One small blip on the radar, a bad quarter or market event, and they're DOA.