Episode 1 – How to Get Customers to Pay Their Overdue, Unpaid Accounts

Managing your business is a formidable task, with one of the significant hurdles being getting your customers to pay on time. Astonishingly, around 55% of all invoices face payment delays, leading to a substantial accumulation of overdue accounts. Late payments severely impact cash flow, posing a significant threat to business’s sustainability - but this risk can be mitigated.

Fortunately, there are effective strategies to address delinquent accounts. This article aims to help highlight a few methods to expedite the payment of unpaid invoices. We will explore straightforward techniques to simplify the payment process for your customers as well as strategic approaches to follow up on late payments.

Admittedly, the pursuit of unpaid payments is not a pleasant task for business owners. Yet, it is indispensable in maintaining your business’s financial health. If you adopt a proactive stance, you can significantly reduce the number of late payments, and improve cash flow. 

Quick Look - Key Takeaways

• 55% of invoices are paid late, affecting business cash flow
• Start reminding customers about payment 5 days before the due date
• Consistent overdue invoice reminders improve payments - its a fact
• Offer payment options to make it easier for customers
• Offer Customize payment plans to get payments flowing
• Start kindly and only escalate if you are ignored
• Consider legal action or debt collection as a last resort

Make it easy for them to pay

Like we've said, managing past due invoices and unpaid bills can be a significant challenge for any business - large or small. The solution to minimizing outstanding accounts hinges on understanding your debtor, simplifying the payment process for your clientele and being understanding and kind at the outset.

1. Clear Payment Details on Every Invoice

Make sure your invoices include all essential payment information. This encompasses your company’s name, account numbers, and the payment methods you accept. Clear instructions facilitate prompt payment by eliminating confusion among your customers.

2. Offer Multiple Payment Options

Offering various payment methods can substantially decrease the number of outstanding invoices. Consider providing:

• Credit/debit card payments
• ACH processing
• Online payment alternatives (Zelle, CashApp etc)

Studies indicate that a variety of payment options can alleviate customer payment challenges. Businesses that offer multiple payment methods experience a 15% reduction in late payments.

“Automating payment reminders can save up to 10 hours a month in billing and payment tracking for small businesses.”

The more straightforward you make payment for your customers, the more likely they are to pay on time. And, self payment options increase customer satisfaction as customers get to handle payments in their time without having to interact with call center staff or tellers.

The 48-hour follow-up rule

Quick, decision action is very important when dealing with debtors and missed payments. The 48-hour follow-up rule can be a game-changer.

1. Contact customers promptly

Reach out to customers as soon as an invoice becomes overdue. This quick action demonstrates your commitment to resolving the issue and increases the likelihood of prompt payment.

2. Convey urgency and seriousness

When communicating about missed payments, strike a balance between urgency and professionalism. Clear, timely communication can minimize conflicts or disputes associated with payment delays. Remember, a delayed response in business often equates to no response at all, potentially eroding client trust.

“A confused mind never buys and almost always never pays”

This adage highlights the importance of clarity in your follow-ups. Be kind but direct about the overdue payment, explain the next steps, and set clear expectations for resolution. .

By adopting the 48-hour rule, you’re not just chasing payments; you’re building a reputation for professionalism and efficiency. 

Tailored communication

Effective communication is essential when addressing overdue accounts with debtors. Adopting a personalized strategy can greatly enhance your success in resolving payment disputes.

1. Direct and Polite Language

When contacting customers about overdue payments, employ clear and assertive language while retaining a kind demeanor. This method conveys your seriousness about the issue without offending the customer.

2. Avoid Generic Messages

Customize your communication for each interaction and escalation. Don't use a ‘repeat’ style approach that just sends copies of the same invoices again and again. Repeated messages frequently go unnoticed. Personalized communication demonstrates your commitment to the customer relationship, boosting the chances of a response.

Utilizing tailored, escalating communication can significantly elevate both response and payment rates for overdue accounts.

The objective is to preserve a positive relationship while addressing the issue of unpaid accounts. 

Leverage human psychology to motivate payments

Understanding human behavior is key to effectively managing overdue accounts. By leveraging psychological triggers, you can encourage timely payments. 

1. Emphasize deadlines

Clear payment deadlines instill a sense of urgency. It’s essential to highlight these dates on invoices and in subsequent communications. This straightforward reminder can prompt customers to act sooner, preventing delays.

2. Highlight possible rewards over penalties

Late payments often incur penalties but you can also use discounted rewards to help incentive payment. It’s vital to clearly outline these rewards, or penalties, to encourage timely payments. For instance, stating “A 10% discount is available if payment is received on notice” leverages game theory or loss aversion, a potent psychological principle.

3. Stress loss of services

In some case you may want to inform customers that continued late payments may lead to service interruptions. This strategy is highly effective for ongoing services or subscriptions. The fear of losing access to valuable resources can motivate customers to settle their accounts promptly.

It’s important to maintain a friendly tone in all communications. Frame these reminders as helpful prompts, not threats. This method ensures positive customer relationships while effectively addressing overdue accounts.

Third-party involvement

Dealing with past due invoices can sometimes require additional support. Let’s examine the scenarios where professional assistance is necessary for handling unpaid bills.

1. Professional collection agencies

When reminders fail, it may be time to seek professional help. Collection agencies are able to help in recovering outstanding debts. They possess the tools and expertise to handle the difficult cases. Their success rates can surpass those of in-house efforts but be aware their tone and style can impact your brand or relationships.

2. Legal options

Legal action should be considered a last resort for recovering unpaid bills. Before opting for legal measures, assess the costs against the expected recovery. Legal involvement can make maintaining a friendly demeanor challenging.

Choosing between a collection agency or legal action requires prompt action. The longer the debt remains unpaid, the more challenging it becomes to collect. Early involvement of third parties can significantly improve your chances of resolving past due invoices, but make sure you've covered all internal 1st party options before choosing this course. Ensure compliance with all legal standards in your debt collection endeavors.

FAQ

1. How soon should I follow up on an overdue payment?

Adopt the 48-hour rule for prompt communication regarding overdue invoices. Then make sure you do so consistently over a 4 to 5 week period. This approach conveys urgency and seriousness, capitalizing on the invoice’s recent relevance in the customer’s memory.

2. What payment methods should I offer to make it easier for customers to pay?

As many as you can that are easy to use and track. Include electronic funds transfer, credit card payments, and multiple payment gateways. 

3. How can I use psychology to motivate customers to pay on time?

Highlight deadlines, offer discount rewards, possibility of penalties, and share the risk of service termination. This strategy instills a sense of urgency.

4. What’s the best way to communicate with customers about overdue payments?

When addressing unpaid bills, employ direct yet kind, polite and firm communication. Customize your approach for each customer, eschewing generic messages. 

5. When should I consider involving a third-party collection agency?

Explore the involvement of a professional collection agency or legal recourse when all internal collection efforts have been exhausted. This step is typically reserved for after multiple direct attempts to resolve the issue have failed.

6. How can I prevent overdue payments in the first place?

To avert late payments, ensure that payment details are clearly outlined on every invoice. Offer a range of payment options and contemplate the use of an automated reminder system.