Debtors can have a crippling effect on any company and the longer companies let their bad payers get away with not paying what is owed, the more they will be letting their company sink deeper into debt, impacting overall bottom lines.
Hence, knowing the early warning signs of debtors is important to the survival of any business. You should already have analytical measures (financial ratios, poor credit records, etc.) in place to recognise debtors, but personality characteristics can also put your mind at ease or give you early warning signs. In doing so, you will be able to avoid the repercussions potential bad payers will produce. Moreover, in cases where you are encountering bad payers, you can employ a variety of methods to help you persuade your bad payers to make payment.
Signs of a bad payer
There are certain questions to keep in mind when dealing with a potential or new customer. These questions can help you figure out if a customer will be a bad payer, avoiding future debt for your business. These questions can be along the lines of:
Does your customer seem to have a tendency to procrastinate?
- Procrastination is a general feature of bad payers and can be a worrying sign. These individuals often postpone meetings and take a long time to return calls.
Are there signs that your customer might be in denial regarding their over-indebted financial position?
- Bad payers often persuade themselves and others that the amount of money they owe is minimal, regardless of the size of their debt. Debt in itself is not bad but hiding from its implications can be catastrophic. Be on the lookout for customers that don’t have a plan to manage their debt.
Does your customer avoid taking personal responsibility for their financial situation?
- A poor credit history does not necessarily indicate a bad payer, but responsibility needs to be taken for past mistakes. Bad payers often provide convincing reasons why it’s not their fault they have not been financially successful in the past and have accumulated excessive amounts of debt.
Is your customer administratively weak?
- If a customer is unable to provide basic information like financial statements, identity documents, and records it could be a bad sign and should not be ignored in your credit assessment.
Approach debtors with these strategies
When it comes to debtors, you desperately need to get your funds from them but at the same time, you really don’t want to destroy the relationship you have with them. Luckily, there are ways to persuade your debtors to pay without severing a relationship with them.
Consider charging interests on late payments
First, you have to do your best to discourage customers from late payments. However, if a customer is just not paying, you can charge interests on late payments. This encourages debtors to pay as they will always try to prevent accumulating more debts through interests and in turn, would want to settle their bills on time.
Allow customers to choose repayment plans
You can also encourage your debtors to pay off their debt by allowing them to choose the most suitable payment options for them. You can offer them two or three different options and allow them to select the most convenient option for them. This keeps both you and the customer happy as they will be able to pay off their debt and you will get the money owed from them in return.
When the deadline set for repayment has lapsed, you can start by sending polite reminders to your debtors to remind them of their obligation to pay. You may need to send several reminders in which your language would get increasingly stern but polite nevertheless.
Call at the right time
If you have access to the debtor’s phone number, you can call them up to request payment, but you should ensure that you call at the right time when the person would be available to pick up your call, otherwise, you risk upsetting the client, or they may not answer the call at all.
Keep your attitude in check
Being rude to debtors is a very unprofessional way to go about requesting payments. Not only will you be putting the reputation of your company on the line, you risk the client not paying their debt indefinitely. It is always wise to remain professional so that the client will still respond to your emails or pick up your phone calls.
Offer your debtors deals
You can persuade your debtors to pay by offering them deals. You could offer to waive off a certain percentage of the debt or offer some kind of incentives which would encourage them to pay off the debts. Just make sure that the ‘deal’ you are offering your debtor does not hinder your business financially or encourage the debtor to make late payments in the future.
As a business owner, you need to be empathetic when it comes to a customer as there may be certain unforeseen circumstances that are causing them to be short on cash, such as a death in the family or job loss. A way to show your empathy is by encouraging your debtors to accept installments which would make it easier for them to pay.
Be persistent but patient
While you need to be persistent about collecting your debts, you also need to be patient with your debtors. People have different reasons why they are unable to meet up with their debt repayment obligations and until you are sure that you are dealing with a debtor that has no legitimate reason for not paying, it is beneficial to be a little more patient.
Threaten to inform credit bureaus
Everyone knows the importance of keeping a clean credit record so as to maintain a good credit. A poor credit rating is not something anyone would want to have on their hands because it can stand in the way of so many things in future. A poor credit score may make it impossible for a person to get loans or even business investors. So, if you have a debtor who is unresponsive and appears unwilling to pay off their debts, you can threaten to report debtors to credit bureaus and you just might start to receive some response.
Get your money back
All in all, no matter what industry you are in, it is never ideal when a customer becomes a debtor that is affecting your business. Collecting money isn’t fun, but you can be assertive without being threatening, and civil without being ineffective. It’s your money, so there is no reason to feel reluctant about using bold tactics to collect it. And not having to write off losses from bad debts can make a significant impact on your balance sheet.
Contact MarisIT and we can assist you send final letters of demand and list bad payers, helping you recover any outstanding amounts owed to your business.