Customers who don’t pay their bills or who are chronically late cost business owners money and also valuable time and resources (which also equals money) trying to collect what is owed them. Handing over an account for collections is among your last resorts. There are steps you can take to try to avoid that.
Most people aren’t familiar with the term “dunning letter.” The name comes from the 17th-century word “dun,” which refers to demanding payment. These are often known as collection letters or overdue notices. They can be sent via email rather than U.S. Mail – at least initially — if that’s how you do most of your communication with customers. By using email, you can help avoid having a customer receive a notice after they’ve made a payment.
Make your overdue notices consistent and effective
First, it’s crucial to have a system in place that will trigger an overdue notice at a specific time for all customers who reach that point – for example, 30 days after the payment due date. Any further notices can then be timed to go out on a schedule after that – such as every 30 days up to the point where you’re prepared to hand an account over to a third party.
It’s also important to vary the language with each subsequent overdue notice. It needs to become less polite and more urgent – eventually warning that the next step is getting someone else involved for purposes of collection or legal action. You may add late fees as well.
How long you continue this process is up to you. Traditionally, it’s 120 days. Of course, if a customer isn’t able to pay all at once and wants to work out a payment plan, you then need to decide whether that’s a good faith offer and if that’s what’s best for your business.
Consistency is important
Giving some customers longer to pay or the ability to negotiate down their debt but not others can potentially lead to allegations of discrimination if you aren’t careful. Using an automated system can help you maintain consistency.
Handling overdue accounts effectively and appropriately – particularly those that eventually require some kind of outside intervention – is crucial to the success of your business. Having legal guidance from the time you set up your system to the time you need to take collection action can help avoid costly errors.