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Thom
Bennett

Website & graphic design

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Debt Collections—How to Get Customers to Pay Up

Wednesday, October 26th, 2011

If you want to make things happen the ability to motivate yourself and others is a crucial skill. Smart businesses use motivation to get results in their debt collecting. Motivation requires a delicate balance of communication, policy and incentives.

At the same time, if you want your customers to pay up consistently and on time, you have to have the ability and techniques to make them want to avoid the negative consequences if they do not pay debt on time.

This kind of training is known as “Carrot and Stick Training”, and if you are a parent you would know all about it! With all kids, this is the approach that really works.

A good debt collector knows that this approach also works with customers. So, how does this technique work in debt collecting?

FIRST, “THE CARROT”:

Offer your customers an incentive to pay on time, or to even pay up front (this works the best for continuous accounts as the saving for the customer adds up with time).

Offer your customer a percentage discount on their accounts if they pay the full account before the due date. Depending on the business you are conducting, anything between 2-5% is reasonable.

Offer your customers a fixed amount deduction if they pay the full account before their due date.

Offer your customers an even higher percentage discount if they pay their account at the time they are getting it issued.

Even better, offer your customers the best percentage discount if they are happy to pay you in advance for your product or services. A 10% discount is a good start, but you can play with the discount by trial and error. Outdo your competition by offering a little bit higher discount and you move your business ahead of the competition! This really works for the clients and you are getting credit in advance that can boost your business further.

For credit card payments, offer waiving of the merchant fees involved if the full account is paid before the due date. You will be amazed at how many customers are frequent flyer users and it would be a minimal discount for you, usually between 1-3%.

NOW, “THE STICK”:

Customers are more likely to pay the accounts that incur interest if not paid on time. Think of all charges you can introduce in your Terms and Conditions if the account is late for payment.

Start charging accrued interest on the day the bill is late.

Withdraw further credit line the day the account is overdue, and make sure this is explained to the customers before the account is opened.

Make your Payment Terms and Conditions cover you for all charges incurred if you have to chase the outstanding payment.

Ask the customer to sign a Personal Guarantee when the credit account is being opened (you never know when you might need this in the future).

Include a clause in your Payment Terms and Conditions that you are going to report the bad debt to the appropriate credit agency (this does wonders with some customers).

Do a little bit of “Carrot” and a little bit of “Stick” approach with your customers and watch how your customers grow to be respectful of your business and your payment demands—just like your kids. These simple tactics will help you maximize your cash flow and strengthen your relationship with your customers. Not bad, ha!

Top image (cc) by CarbonNYC via Flickr

This is a cross-post from Ezine Articles.

Ranka Cvetkovic is the Principal of Ethical Dealings Co—a debt management and credit control consultancy business. She manages EasyDebtCollecting.com, a web based resource for businesses and individuals who are seeking to improve their business cash flow and get more in depth knowledge of debt collection policies and procedures. Cvetkovic also helps other business owners keep up with the current emerging trends of debt collecting and business improvement. With her main focus steering traditional business owners through the often-confusing issues with debt collections and cash flow, Cvetkovic is an expert on Credit Control and Debt Management. For more great debt collection tips please visit the blog http://www.easydebtcollecting.com

View more at:
http://www.designtaxi.com/article/101732/Debt-Collections-How-to-Get-Customers-to-Pay-Up/

If you want to make things happen the ability to motivate yourself and others is a crucial skill. Smart businesses use motivation to get results in their debt collecting. Motivation requires a delicate balance of communication, policy and incentives.