7 common mistakes in accounts receivable management (with solutions!)
Healthy accounts receivable management is crucial for the liquidity of your business. Yet, many companies, from freelancers to SMEs, make mistakes that cost money unnecessarily. In this blog, we discuss the most common mistakes and explain how a collection agency can help you avoid or resolve those pitfalls.
1. Waiting too long to take action
Many entrepreneurs wait months before contacting a client. This drastically decreases the chance of a successful collection. The sooner action is taken, the greater the chance of payment. Furthermore, the statute of limitations may approach, and the client may develop financial problems or even disappear (due to bankruptcy or similar).
Solution
Establish a clear internal process for unpaid invoices. For example, with a reminder after 14 days and a formal notice after 30 days. If the client still has not paid, you can immediately transfer the invoice to a collection agency.
2. Poor follow-up on reminders
Once a reminder has been sent, it is important that it is followed up properly. For instance, by referring to outstanding invoices during regular contact with a client. There is a high chance that your invoice will sink to the bottom of the stack at the client's office without structured follow-up.
Solution
Research shows that many entrepreneurs find it difficult to remind clients of an outstanding invoice. An automated system can be a good solution in this situation. This system automatically sends a message to the client when the due date of an invoice has been reached. If the client does not pay, it is advisable to transfer the invoice to the collection agency. Especially if you find it difficult to chase debtors, it can be nice to outsource these tasks.
3. Emotional or unclear communication
Besides good structure, the way you communicate about outstanding invoices is also important. Angry phone calls or vague emails often work counterproductively. Clients feel attacked, which leads to escalation or complete radio silence. The relationship with the client is seriously damaged in those situations.
Solution
Finding the balance between a decisive message and respect for the client's situation is sometimes quite difficult. A collection agency specializes in collecting invoices and knows exactly how your client should be approached. Moreover, 'neutral eyes' often force action. Your client is frequently more impressed by a third party than by your own communication.
4. Unclear payment terms or general terms and conditions
Many companies forget to make clear agreements with a client or do not even state a payment term on the invoice. This causes a lot of ambiguity, and you risk waiting a long time for a payment.
Solution
Ensure clear general terms and conditions and communicate them well with your client in advance. Additionally, you must ensure that your invoices are clear and comply with all invoice requirements. If you communicate everything well with your client beforehand, this prevents problems at a later stage.
5. Recording evidence
Should your client not pay even after following an amicable collection trajectory, you could start a legal procedure. If you want to start a legal procedure, it is important that you have an overview of all communication with a client. From the first contact and quotes to the invoices and formal notices.
Solution
Incasso.nl helps you set up a collection file. Furthermore, we give you advice on evidence to collect and explain how this can help you. That way, you stand stronger in a possible legal procedure.
6. Remaining too soft for fear of losing clients
Some entrepreneurs remain polite and passive for too long for fear of losing a client. Of course, it is important to remain respectful and have understanding for your client. On the other hand, an overly mild attitude can cause you to undermine your own position. You have made agreements with your client, and those must naturally be fulfilled.
Solution
A collection agency like incasso.nl acts in a client-friendly but firm manner. There is an agreement, and we are going to hold your client to it. It may seem unlikely, but deploying a collection agency can even strengthen the relationship with your client.
7. Not making a distinction between debtors
There are various reasons why a client has not paid your invoice. There are clients who have simply forgotten your invoice, but also clients with serious financial problems. Not every late payer is a non-payer. Yet, many companies treat all debtors the same.
Solution
Make a good assessment of your client's situation. A client who has forgotten your invoice might pay after sending a reminder or after a short phone call. A client with serious problems might bury their head in the sand and be difficult to reach. If you cannot resolve it yourself, the collection agency can help you with this. For example, they can make agreements with your client with a customized arrangement. In this way, the approach is tailored to the client's situation.
Conclusion
By using the right approach and timely deployment of a collection agency, you prevent frustration, accelerate cash flow, and protect your company against financial risks. Do not let mistakes in accounts receivable management undermine your success and take action in a timely manner.
At incasso.nl, we are happy to think along with your accounts receivable process. For instance, our collection specialists can help you without obligation with a clear process and what you can do in your specific situation.
Do you already have invoices that you want to transfer to a collection partner? Create a free account at incasso.nl and start your first collection case immediately.
