Debt collection: Top 4 tips for effective payment reminders: Overdue invoices present a significant difficulty for companies because they consume working capital, whilst agencies place additional expectations on their ability to close accounts swiftly.
Due to overdue invoice companies might end up with losses due to:
- lost operating revenue
- Paying interest on loans to make up for cash flow shortages
- Spending time pursuing late customers
- Writing off bad debts
It makes sense to send a reminder if a customer doesn’t pay by the due date. To improve the likelihood of success, the correct timing is essential. But when exactly should a reminder be sent?
A well structured initial reminder
It is common to deliver a notice of default to your customer before taking any further action. A “reminder” is another name for the common phrase “notice of default.” You inform your client that you still expect payment after the predetermined payment term has passed and that your invoice has not yet been paid. Customers who have not yet paid the invoice typically receive one to three reminders.
There are a few things you need to keep in mind while sending reminders. They consist of the following:
- Timeline: From when and till when you should begin issuing reminders.
- Messaging: The reminders’ content.
- The messaging tone: How your message should be taken in.
- Channels of communication: Methods for reminding debtors.
These factors work together to determine how your reminders affect debtors.
Timeline
Ideally, you shouldn’t have to wait too long or send too many reminders right before the deadline to receive payment. Therefore, it is advised that you get started as soon as feasible.
1: Send the reminder before the deadline.
The dates of their payments are frequently forgotten by debtors. You should therefore remind them when their date is approaching. You can send them an alert a day or two before the due date to let them know that it is getting close. Mention any benefits of making on-time payments as well to give customers an extra incentive.
2: Immediately following the deadline, send the second reminder.
It is advised that you take action right away and avoid waiting too long after the deadline. A prompt reminder demonstrates your company’s effectiveness and commitment to the receivable.
3 No more than four automated reminders should be sent.
Here, automation is a vital word. These may be pre-written SMS or emails (including the first one before the due date). Most of your debtors should have paid their debts by the fourth reminder if they were able to. But if they didn’t, it’s time to speak with them on the phone or face-to-face to see if there’s a problem.
4: Don’t mention the reminder number.
It suggests that there may be more to come when you use phrases like “first reminder” or “second reminder.”Debtors can treat this carelessly and postpone taking action.
Messaging
The tone and content of your debt collection reminders should guarantee that the recipient is aware of the unpaid balance and has access to all the information required to submit payment.
1: Include the deadline in all reminders.
Include the date the payment was/is due, whether it’s the first or fourth reminder. It will serve as a deadline to be observed in the initial reminder. The subsequent ones will reiterate the importance of paying the payment in a non-threatening manner.
2: Include the debt amount
This is a given for any debt collection reminder. Make sure to inform debtors of the exact amount they owe you since they might not keep track of their payments as carefully.
3: Give payment choices
You must make the process simple for the debtor to improve your chances of receiving payment. Therefore, be sure to give them a variety of payment choices and inform them of this in the reminders.
4: Include your contact details
You don’t want to wait too long to learn if the debtor is having difficulties making payments, is unable to pay right away, or wants to negotiate a new payment arrangement. This is why it’s advised that you give debtors a means to contact you so that you can inquire about any problems they might be having. In every reminder, be careful to mention this information.
The messaging’s tone.
The tone of the communications is a best practice for debt collection reminders that are frequently disregarded. Your tone has a big influence on how the debtor interprets what you’re saying. Because of how this impacts their relationship with you, it’s crucial to take care while creating your reminders.
1: Be cordial in your first two reminders.
You don’t want to annoy the debtor by coming on strong at the beginning. That doesn’t make it possible to have a successful relationship going forward. Additionally, there is a potential that the debtor merely forgot about the obligation and will reimburse you following a cordial reminder. There’s no need to over-emphasise this situation.
2: In the third and fourth follow-ups, act more assertively while being non-threatening.
There is a chance that the debtor will disregard your reminders if you haven’t yet received payment. To get the debtor to take it seriously, use a more aggressive tone than in previous reminders. However, be careful not to seem threatening.
3: Be friendly to debtors when you phone them.
When calling the debtor after numerous reminders, be sure to smile and have a conversation. You may need to arrange a new payment plan at this stage because there’s a strong probability the debtor is struggling. However, the debtor won’t talk to you about it unless they feel heard and comfortable engaging in a conversation where they can freely explain things. They can’t see it, but they can hear it, and they take comfort in it, so a grin goes a great way here. Furthermore, it’s excellent phone manners.
Channels of communication
The right choice of communication channels is a further underutilized best practice for debt collection reminders. To ensure that your message is received and has the intended effect, you must use the appropriate ones.
1: Send initial reminders via text and email.
When reached via their preferred communication channel, people are more likely to make a payment. Emails and texts were among the most popular methods. Email or text reminders also work well for early reminders because you don’t need to come out as too firm.
2: For the third and fourth reminders, use more private channels.
Your messages may have been overshadowed by other communications, and customers might not see your reminders. You can then switch to more private channels, such as voice broadcasts. A voice broadcast reminder is not only difficult to miss, but also not overly intrusive.
3: After all reminders, give the debtors a call.
It’s likely that the debtor is avoiding you or is currently unable to pay if they haven’t responded to any of your reminders. To set the record straight and engage in negotiation, you will need to engage the debtor in a lively dialogue. Additionally, after a few reminders, calling the debtor is a terrific idea because most of the debtors would have already responded to your automated reminders. As a result, your list of potential targets will be shorter at this point, which will enable you to deploy your resources more effectively.
Self-control
Any company that extends credit should have a methodical process in place to keep track of unpaid invoices and debtors so that it never loses track of any money that is owed. This method should incorporate:
- Before the issuance of credit, credit application forms must be signed and approved.
- tracking of invoices that shows when, how much, and how long they are past due.
- a routine communication process that is used whenever an invoice is past due.
- To reduce debtor days, debtors predictably receive reminders to pay at predetermined periods.
- a well-known procedure for elevating debt collection to experts as necessary, preventing collections from stalling. Although manual debtor management duties are achievable, automation frees up experienced people to focus on other important tasks that compete for their time and attention. Automation results in discipline and control and is more effective and reliable.
Data
Setting some accounts receivable objectives is a great approach to highlight cash flow and aid firms in focusing on getting paid more quickly. Days Sales Outstanding is a straightforward accounting formula that can be useful in this situation. Use it to figure out the typical collection time in days, then figure out what has to change so the number of debtor days decreases.
Business owners should always have access to the following information:
- accounts with the greatest late fees
- those who owe the most money in debt
- Debtors on the verge of defaulting
- Debtors that are either close to or have reached their credit limit
Debtor friendly
Both a customer-friendly business and one that is considerate of its debtors will benefit. Make it simple for creditors to pay you.
Tips for being a debtor-friendly business:
- Provide customers with a variety of payment options, especially online ones, which are the most practical.
- Send considerate reminders; smaller clients frequently rely on the supplier’s system of reminders.
- In case of a dispute over an invoice, act promptly and fairly.
- Encourage prompt payment.
It’s simpler than you might imagine solving the debtor management puzzle. You can also unleash your potential once you’ve unlocked the money. Traq Software Solutions, As a leader in the Collections space, uses technologies and expertise to deliver nothing less than a world-class experience for our clientele.
We offer features that make it easy for you to issue reminders and take in payments.
This includes easy Payment Solutions including Debi-Check, Online EFT, Card Payment etc. Click to SMS/Email feature with standard templates and Process Automation.