STRATEGIES - debt collection methods

best debt collection method
This is the best debt collection method to adopt if you’re like most businesses who look at their Aged Trial Balance and say “How on earth do I sort all this out?”. If you want to collect all of your unpaid invoices, quickly, try this four-step debt collection method ...
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Step One - Take a completely fresh look.
Print up a copy of your Aged Trial Balance. Take a completely fresh look at it. Become the "new broom". Forget what’s been done before. Start all over again.
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Step Two - Conduct a “YES/NO” review.
Go through all of accounts on the printout, one by one, and simply mark those that you don’t want to follow up right now. It doesn’t matter why. Just note any that you don’t want to follow up.
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Step Three - Classify all accounts into one of 4 categories.
CATEGORY 1 - “The Untouchables”.
These are the “special cases” that you don’t want to follow up for whatever reason (eg genuine hardship / someone who refers a lot of business / a relative (!) / already with a Debt Collector)
CATEGORY 2 - "For Special Consideration".
These are accounts where the amount of the debt is extremely large or where there's a "story" behind the debt.
CATEGORY 3 – "Just Due For Payment".
These are the accounts where the only amounts due are current invoices. Perhaps also include those with only a small remaining older balance, but not those with a largish older balance. (This is where your "fast money" is.)
CATEGORY 4 – "Long Overdue For Payment".
These are accounts where there is more outstanding than just the current fees. (Balances may be small.)

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(Remember, the aim of the exercise here is to collect as many of the outstanding fees as possible with minimal work, in the shortest time, and with no client upset.)
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Step Four - Deal with each category one by one.
"The Untouchables"
- by their very definition, these accounts are NOT to be chased. Diarise to look at these again in one month.

"For Special Consideration"
- look at each account in this classification AFTER you've dealt with the next two categories. (These will take a while to resolve, so that's why they're done LAST.)

"Just Due For Payment"
- send them all an email with wording like this

Dear Sirs,
Invoice for: Camelot Pty Ltd
Invoice No: 67299
Amount: $3,575.00
According to our records, the above amount appears to be outstanding.
If payment has been made, thank you.
If it hasn't, please organise for settlement in the near future.
Please contact me if you have any queries or if I can be of any assistance.
Kind Regards,
Jane Smith

"Long Overdue For Payment"
- send them all an email with wording like this

Dear Sirs,
Re: Outstanding Fee Balance - $450.00
During a recent audit of our accounts it was pointed out that the above balance appears to remain outstanding.
As we are not aware of any queries and this balance is considerably overdue would you please now organise for its settlement by return mail or contact me personally if you would like to discuss the matter.
Kind Regards,
Jane Smith

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Points to Note:
  • Try and use a name that's unfamiliar to your debtors, and, if you haven't got someone you can use, make one up!
  • It works because main effort is put into where the fast money is.
  • This debt collection approach assumes innocence, and is very non-confrontational
  • The wording in the emails blames other things (the "records" and the "audit") for following up payment
You'll be very pleasantly surprised at the results you'll achieve by adopting this debt collection method. Like every other post in this blog, it's based on the

3 comments:

  1. \useful tips.....especially the wordings in the Email,which do not directly blame the client rather it is information sourcing of there being any query and or a miss recording of payment from a client.

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  2. Very helpful methods for debt collection. I am also working for a debt collection company. We will use these methods for debt recovery. Thanks for the nice information. I appreciate your post. Good Luck !

    ReplyDelete
  3. Very impressive post about debt collection. thank you for this great info.

    ReplyDelete