When it comes to collecting overdue payments of any sort, the best way to make sure the whole thing goes smoothly is to have a system in place that makes it as simple and painless as possible. While there is no specific ‘correct’ collection process, there is a general way of setting one up, a relatively simple set of guidelines and criteria to follow that will ensure that it mostly works. Of course overall the point is just to make sure that overdue payments get paid on time, because languishing debts can seriously harm the cash flow of the business.
Before due date, check customer satisfaction
The first thing to do is find a means of testing customer satisfaction. Whether you do this through a phone call, email, or letter is irrelevant, so long as you do it. This is because dissatisfied customers are much more likely to pay late. Therefore, if there is some aspect of your business that is creating a lot of dissatisfaction among your customers, you could be creating more fiscal issues for your own company. You should time these feedback surveys appropriately, a few days after you have rendered a service or provided a product, and a few days before a payment is due. In this manner you can provide a reminder without being overbearing, and possibly find a few flaws with your own system while you’re at it.
On due date, send a comprehensive written reminder
There is also the matter of overdue notices. How you go about these is critical to the probability of a customer being cooperative and paying their bill. Generally speaking, these reminders should be civil and professional, though more insistent as time wears on. The first notice usually assumes that the lack of payment was accidental: that the customer simply forgot, or that some outside factor interfered with them paying on time. Whenever you decide to send out your first overdue notice, it should simply be a reminder free of accusations ill-temperament. If the customer really did forget, a simple reminder is usually good enough to receive your money. Similarly, your second collection notice should be civil as well, simply reminding them that the situation needs attention and that things could get more complicated if they don’t pay soon.
When the date is over due, put pressure with a phone call
If the overdue bill remains at that point, it is time to discover why exactly it hasn’t been paid. The aforementioned notices can be easily ignored or forgotten, so you’ll likely need to take a more direct approach to reminding your client of what needs to be done. A phone call is usually a good choice. The purpose of this phone call is to find out exactly why the bill still hasn’t been paid, keeping in mind that the customer could be in a bad spot. While you do want to get a commitment to pay from the customer, it will do the process well to remain sympathetic to whatever factor is impairing their ability to pay. Of course, you should be ready for excuses as well, especially if the customer claims to have paid already. You should always ask for dates to determine when their payment should arrive if they really did do it. It’s also a good idea to send a collection letter that reiterates what was discussed in the phone call as a reminder of the situation.
If the payment is late, become insistent and firm
At this point you will simply repeat the process with a second or third phone call and collection letters, each more insistent and serious than the last while still remaining civil and polite. These calls should determine whether or not the customer can pay immediately, and if they cannot, they should set a due date for that payment. The third call however, is the most important.
Being the last call you make, it is important to stress to the customer that it will be their last chance to pay the bill before the matter is turned over to a collection agency. It would also do to stress the benefits of paying the bill before it reaches that point, such as maintaining good credit. After this call and letter, there will be no other option than to let a collection agency handle the matter, as the bill should be several months past due at this point.
While this process is simple, it is also efficient, and works to maintain a civil and cooperative atmosphere between your company and your client. The smoother this whole process can be, the less stress it will be on your cash flow and financial health.
In Europe, it is now possible for companies to use SEPA Direct Debit, a direct debit system that allows them to receive payments from European member countries. Enabling better cash flow management and avoiding multiple collections, the SEPA Direct Debit offers a lot of benefits to the company using it, but also to the customer who has accepted it.
But what is Sepa Direct Debit?
SEPA Direct Debit (or SDD) is in fact a means of automatic payment that is used for settlement of one-off or recurring invoices. It can be practiced for example if a customer asks for an average payment plan: it is much safer for the creditor to request a SEPA direct debit to be sure to recover the entire debt.
The Sepa Direct Debit is only possible if the customer authorizes his creditor to use it. The advantage is that it works from bank to bank, and there is no amount limitation: you can use the Sepa Direct Debit for an invoice of 10 euros just like an invoice of several thousand euros.
Enabling better cash flow management
Where does the SEPA Direct Debit come from?
Before the SEPA standard was imposed, payments between companies in different European countries were rather tedious. Due to differences in the various banking systems, payments often required data and formats, which meant that receiving a payment from abroad was time-consuming and costly.
During the Lisbon European Summit in March 2000, one of the wishes was to make Europe one of the most competitive economies in the world. This target was to be achieved by 2010. Many laws were then amended to harmonize the legislation for both euro and non-euro payments. And now, since 1st August 2014, all payments made in Euros in member countries of the Eurozone must now be collected by the SEPA direct debit system.
The different types of Sepa Direct Debit.
There are two different types (or diagrams) of SEPA Direct Debit:
First, there is the best-known scheme, Business to Customer (also known as B2C or Core), which applies to creditors whose debtors may be consumers, but also professionals. With this type of scheme, it is possible for the debtors to request a refund within 8 weeks after the withdrawal from their account.
Then there is another schema: the basic Business to Business (or B2B) schema. It is therefore addressed to creditors whose debtors are only professionals. Here, on the other hand, debtors can not be reimbursed due to a withdrawal from their account, except of course in case of error. Two cases will then apply: either an amicable settlement or a judicial proceeding.
Why use the Sepa Direct Debit?
The use of SEPA Direct Debit offers a multitude of advantages for both the customer and the supplier, although of course the advantages of using SEPA Direct Debit for the supplier are greater than for the customer.
For the customer, the use of the SEPA Direct Debit is advantageous because it allows him to postpone his payment: he validates the authorization of direct debit and the payment takes place later. It optimizes its time, especially if it intends to pay the bill. It thus prevents control at the time of reception and then again at the time of adjustment.
It also avoids potential delays in payments, which may result in service interruptions or penalties.
For the creditor, the advantages to using the SEPA direct debit are numerous: it reduces the chances of not receiving payment, the processing of invoices is much easier, the creditor is certain to receive his payment at maturity, and thus his Cash flows are doing better. Let us not forget the importance of good cash flow management to have a healthy business: let us remember the case of the famous startup…Save
How to convince a customer to go to the levy?
In fact the French are less inclined to use payment by levy than the Germans. However, we must persevere. Here are some techniques to get your customers to SEPA direct debit:
- The method that works best is to offer a discount for a payment by Sepa Direct Debit. Generally, companies offer a rebate of between 2% and 4% to encourage their customers to accept a SEPA direct debit mandate. Losing 4% of your selling price is nothing compared to the benefits and security that the SEPA Direct Debit can offer you.
- If you do not want to lower your margins, you can also simply propose a longer deadline for SEPA direct debits. Change from 30 days, to 30 days end of month, giving instead rather 45 days.
- You can also define that it is your only means of payment. This is the case of some telecom operators.
- You can also offer an extra cost of administration fees for other means of payment.
Dunforce also supports you on this important topic. With our platform, if you wish, you can set up a Sepa sampling service.
Your invoices are sent to your customers and at maturity, the levy is set up and debited directly from your client’s account to be paid on your own. We manage the entire chain, you do not have anything to grab on each invoice.