Debt collection is a step you can take when a client hasn’t paid their invoice and you’ve tried to collect payment yourself.
When a client doesn’t pay by the due date for a service or product they’ve bought, you should follow up on the outstanding invoice and send payment reminders.
If the client still doesn’t pay, you can consider outsourcing the debt collection.
What is debt collection?
Debt collection is the process of trying to retrieve outstanding amounts. There are dedicated debt collection agencies that will do the job for you, for a small fee.
If you go this route, you delegate the collection process and save yourself valuable time that can be used to gain new customers, complete existing projects, or produce goods.
Many companies also prefer to use an agency so that they don’t have to deal with the customer themselves. But remember that you’ve in essence given the customer a loan, they have to pay you back for the product or service you’ve received.
Can you do the debt-collection yourself?
Yes, in-house debt collection or self-collection is when you manage the process yourself. It’ll look much the same as it does when you outsource it, but you might have lower interest rates and fewer payment incentives.
The process will take up time and resources, so you have to work out if it’s worth it, or whether you’d rather pay an agency to do it for you.
See also: How to handle overdue invoices
How do I avoid late payments?
There are many steps you can take to avoid having to go this route. Here are just some tips:
- Send invoices as soon as you’ve sold a product or service. You don’t want the client to forget you, and the sooner you send the invoice, the sooner you can get paid.
- Make sure there are no errors on the invoice, if you have to credit the invoice and send a new invoice it’ll slow down the process
Reach out as soon as the payment is overdue. If you use invoicing software, you can simplify the process by setting up automated payment reminders.
