It is one of the realities of business that, at some point, you are going to have customers who pay slowly, or not at all. This can place serious strain on your cash flow and reserves, if it is allowed to get out of hand.
Depending on the severity of the situation, you may need to institute an increasing range of measures to recover the money owed to you.
Friendly calls and reminders
Your first step is to proactively contact customers whose accounts are overdue. Your accounts department or person should ideally handle this as part of their regular duties. As much as you need to ensure payment, you as the business owner don’t want to establish conflict with a customer, especially a regular or important customer.
Should accounts remain unpaid, it is time to step in and escalate the conversation directly with your customer – preferably as high up in the organisation as possible. If the debt is growing, you could also threaten to stop supply until outstanding accounts are paid.
The legal approach
If your requests for payment, or a series of payments, fall on deaf ears, it’s time to call in the big guns. You can approach a lawyer to send a letter of demand for payment. This tends to send the message that you are taking the debt seriously and that you intend pursuing the matter through legal channels.
Issuing a summons
This is the next step up the ladder. You can have your lawyer approach the courts to issue a summons demanding payment. While the letter of demand in the previous step is not overly costly, you will start incurring higher legal fees once you start approaching the courts or take subsequent steps. So, be sure the amount you are trying to recover is significant enough to warrant such expenses.
Application for liquidation
This should only be pursued if you are truly desperate, the amount in question is significant, and you expect to never do business with the customer again. This process can be lengthy and expensive, and you also have to accept that you will only receive a portion of the total owing to you.
Key take-away: Debt collection is never a pleasant experience. Try to resolve the issue as early and amicably as possible, especially if the customer is a long-standing or important buyer. By the same token, a non-paying customer is not a customer worth having.