Collecting aging receivables is a stressful, tedious, sometimes-unpleasant process. Unfortunately, letting aging receivables slide is even worse, because the older they get, the harder they are to collect.

Here are some tips and a how-to guide for business’s least pleasant necessity.

Tips

Don’t procrastinate. You need to react fast to aging receivables in order to be effective. And being effective protects your net profit. Any aging receivables that you don’t collect come right off the bottom line.

Don’t assume that they’re bad people. Some people forget, some people are disorganized. Sharks exist, but most late-payers want to pay their bills. They just need help deciding to pay you first.

Be consistent. If you say, “I’ll call you Monday” and you don’t, it means it’s not important. For someone struggling with cash flow, they’ll pay the people that ask first and ask often.

Whenever you contact an account, have all your billing and payment information up to date and at your fingertips. Communicating that you’re organized and nothing falls through the cracks shows that you’re not going to let receivables fall behind either.

Review receivables twice a month. (Every 30 days isn’t enough.) The more contact you have with late-paying accounts, the more likely it is that you’ll get paid.

Be polite, but be assertive. As soon as an account doesn’t follow through on a commitment to pay or to contact you on a certain date, contact them immediately and increase the required commitment to proceed.

Use a good CRM application like Highrise to track all of your correspondence, and to schedule your follow-up reminders. Not using a CRM to track your correspondence means one of two things: you have mental faculties that would be better employed by NASA, or you’re deluding yourself in how good you think your memory is.

PHASE 1: Good customer service

Fifteen days after issuing an invoice, call each account and ask if they received the product in good order. Not only does it show that you care about their business, but it gives them the opportunity to voice any problems or concerns. (If your business uses “due upon receipt” or less than net 30 as standard terms, then this obviously doesn’t apply.)

In order to help avoid an aging receivable, be sure that the customer service person asks, “Do you have any questions on the invoice?” If there are no concerns or complaints — and if it’s documented in your Highrise database — then it’s harder for late-paying accounts to come up with excuses later.

Prepping for the process

1. Export an aging receivables list into an Excel file.
2. In Excel, sort the receivable columns by aging (oldest to youngest) and by dollars (highest to lowest).
3. Review your correspondence in your CRM system. Double-check that customer service has contacted each account on the list and confirmed that there were no problems with the invoice.

PHASE 2: “We’re paying attention”

For accounts that are 1-15 days past due: Wait. Many accounts only send payments on the designated due date, which means that they’ll arrive after the deadline.

For 16-30 days past due (email): Send a friendly email letting them know that their account has recently gone past due. Here’s a sample first notice. Depending on the response, make any follow up notes in your CRM database and follow up as required.

For 31-45 days past due (call): If there’s been no response to the initial email, call the person in charge of accounts payable and double check that you have the correct email address and whether or not they received the first notice. Be sure to ask when you can expect payment. Make good notes and follow up as required.

Tip: As I go through my aging receivables spreadsheet, I usually color-code each cell according to the type of response:

• Green for “paid” (if payment arrives);
• Yellow for “contacted”;
• Orange for “look into” (if I need to reference more info);
• Red for “not responding” (usually happens later in the process).

PHASE 3: “We’re concerned.”

For 46-60 days past due (email): By now, any late paying accounts should have paid, or acknowledged the initial contact and have a payment plan in place. For unresponsive accounts or for accounts that haven’t followed through on payment commitments, send a second (polite) email. Be sure to put “SECOND NOTICE” in the title. Here’s a sample second notice.

For 61-75 days past due (call): If an account has still not responded to your attempts to contact them, then I think it’s safe to assume that they’re having cash flow issues. The level of commitment (and consistency of follow ups) has to increase. Call the account and ask what day next week you can expect payment. A few things may help:

1. Use “The Pause”. Once you have the A/P person on the phone, start the conversation with, “Hi, this is Scott from Brand X. I’m calling about invoice #12345.” And then go quiet. Most people are uncomfortable with silence, so they’ll offer more information than they would if you ask a pointed question.
2. Stay on the phone until you get a commitment from them to pay on a certain date or to contact you on a certain date with payment specifics (cheque number, amount, tracking number for the mailing).
3. If necessary, offer to accept payment by credit card and email a credit card authorization form to them while they’re on the phone. Personally, I prefer to use Paypal for credit card payments — it’s free to setup a basic account and deals with multi-currency for no extra charge.
   * Note: the payer does not need a Paypal account for this. Feel free to use this image in your instructions.
4. If they insist on paying by cheque, offer your Fedex number for their use, and request that they send you a tracking number that same day. (Most collection agencies charge upwards of 35%, so courier fees are a welcome alternative. Plus, requesting a tracking number eliminates any “the cheque’s in the mail” nonsense.)

PHASE 4: “We don’t have the resources to pursue this any further.”

For 76-90 days past due (email): Unless there are extenuating circumstances or there are payment plans in place, this should be the final notice. Send an email that clearly states as much, including “FINAL NOTICE” in the email title so it’s not missed. Be sure to state how many times you have tried to contact them, that you will not be contacting them again, and that you must receive payment in full by [date] or the account will be forwarded to your collection agency. Here’s a sample final notice.

At 90 days past due (collections): Forward the account to your collection agency. Be sure to include a detailed history of your prior correspondence with each account. This will help the collection agency do their job, and it’ll avoid any he-said-she-said nonsense if they already have documentation to back up their position.

It’s not uncommon for accounts to suddenly contact you at this point and want to make a deal. I would refuse. In the interest of maintaining a good relationship with your collection agency, it’s important that you back them up. Restate to the account how many times you’ve tried to contact them, and that at this point it’s out of your hands.

Summary

If you’ve followed this process in a polite, assertive manner, then you’ve given your aging receivable accounts ample opportunity to settle their account. Rest easy knowing they’ve had multiple opportunities to pay their bills. At this point, 65% of the amount owing (because 35% will go to the collection agency) is better than nothing, especially considering all of your time spent so far in trying to collect.

Chasing aging receivables is unpleasant at best. But watching net profit needlessly disappear is even worse. Keep on top of aging A/R, and protect your hard-earned dollars. As tedious as it is, staying current with receivables is the most important part of the payment process.

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