How to deal with customers who bought on credit and aren't paying

Introduction

In business, you often have to extend credit to your customers.The problem with this is that if the customers don't pay you back, or even don't pay you back on time, it can create problems for you.Don't let yourself get into the position of not making payroll because of outstanding debts.Take care of these problems when they are small problems so that they don't evolve into large problems.

Instructions

Difficulty: hard

Steps

Step 1:Be careful about extending credit.You may have to extend credit but you don't have to extend credit to customers that are bad credit risks.There are several ways to protect yourself.One way is to do a credit check prior to extending credit.It is your right as a creditor to do a credit check and it is always a good idea.Another way to protect yourself from bad credit decisions is to only extend a small line of credit to a customer until they prove themselves.If your customers pay their small debts on time, you have good reason to assume that they will pay large debts on time.Do not extend large amounts of credit to customers with bad credit ratings or to customers who have not proven their credit worthiness.

Step 2:Give a reminder.If a customer is late in paying a bill, they should be "reminded" immediately.The longer you wait to take action when a payment is late, the more leeway that the customer thinks that he or she has.Don't let your customers think that you are okay with payments that are even a few days late.One way to deter late payments is by having late fees associated with the late payment.You can use this as leverage.If they are a day or two late, you might call to ask about the payment and suggest that as long as the payment goes out that day that you will forgive the late fee.

Step 3:Make a collection call.If you made a reminder call didn't receive a payment, you need to make a collection call.This call should result in a commitment to payment.Get specific information about the payment, for example, how much is going to be paid and what day will the check go out.When making this call you need to control the conversation. You should be professional and to the point.Remember that you are not supposed to argue with the customer or become friends with the customer.They might have a sob story to tell you.Don't listen to it, you might briefly sympathize but say something like, "It sounds like you are having a hard time, what amount of money to you think you could pay this month?"Get a commitment for payment before hanging up the phone.If you don't get a commitment, go directly to step 5.

Step 4:Call back.If you got a commitment for payment in step three but do not receive the promised payment you should call back.This time, try to talk to a person in a management or ownership position.You already talked to the secretary and didn't get results.Suggest that you talk with a superior so that you can work out details about your continued relationship with the customer.Basically you will repeat the collection call but to someone with more authority in the company.Explain your position and suggest that you are losing patients.Remind the person that you already made a similar call and received a promise of payment.Keep detailed notes about the call because this debt is most likely going to have to go to collections.

Step 5:Start legal proceedings.You don't want it to come to this but if the customer has not made the payment or arranged a payout with in 90 day, it is time to place the debt with a collection agency and begin legal proceedings.