Businesses that sell to other businesses need to be cognizant of the challenges that are associated with collecting this outstanding debt. Collecting commercial debt is very different than collecting debt from customers and there are several important considerations to have when doing so.
Collections Start with Onboarding Customers
Businesses want to increase their revenues by selling greater amounts to existing customers and by adding new customers. However, it is not worthwhile to add customers who are unlikely to pay their outstanding debt and a company can help to avoid their future bad debt by doing some due diligence on their customer base before they start selling to them. To do so, a company should perform a background check on all customers they are extending more than a base level of credit to by obtaining references from them and inquiring of the references, by looking up their credit score, and by having a firm process by which they are able to extend only a certain amount of credit to a specific customer. By undergoing these steps, a company can help to minimize the potential bad debt that they have.
Organize Around Your Billing Team
There are several reasons why commercial customers do not pay bills, including financial hardship and potential bad actors. However, many commercial debt customers will simply not pay bills that they believe are inaccurate or those that they receive in an untimely manner. Companies will need to invest heavily in their billing team in order to ensure that bills are accurate and are sent in a timely manner. By doing so, they can improve on their overall collections and reduce the amount of commercial debt that they ultimately have to write-off.
To improve on your billing your company should have clearly defined billing processes, a level of review and verification surrounding invoicing customers, and a set calendar for submitting invoices. In addition, your company should have a channel for customers to make inquiries of invoices and obtain additional support for their charges.
Have a Dedicated Person Following Up
Many businesses will not pay their outstanding debt until you pressure them for payment. Having a dedicated person to follow up on commercial debt collection can greatly improve on the collection process and drive your cash flows forward. It is better to have specified individuals involved in debt collection activities to avoid duplication of tasks and adding to customer annoyance. Make sure that this individual is trained on the overall business and understand when and how to follow up with customers and can work to resolve problems encountered with customers, as well as has the authority to enter into payment arrangements with customers when needed.
Choosing More Drastic Measures for Commercial Debt Collection
Some customers, regardless of the efforts that you make, simply don’t pay their bills easily. In these situations, it is important to have a process set up where you can recover as much of the outstanding balance as you can. Some of the options available to business involve:
– Using Outside Consultants to help you to pursue the debt. Many companies will use professional debt collectors who can threaten or pursue legal action against those who do not pay their outstanding debt
– Consolidating and Selling Debt to a Third Party: Many companies will sell their outstanding receivables to a third party, either an investor or a factor, who will collect the debt on their own behalf in exchange for a discounted rate
– Turning off service: If a company sells to a customer regularly, they should not provide the services until their outstanding debt is cleared out to avoid overexposing the company to bad debt.
Collecting on Commercial debt can be challenging but the aforementioned steps should help to improve on your company’s overall debt collections and improve on your cash flow.