Using a debt collection agency can be a necessary step to get your invoices paid. However, it is also one you want to avoid (where possible).
Most clients view this collection method as aggressive, so it could hurt your customer relationships and lead to further loss of business later on. Moreover, impersonal collectors force you to surrender control over the collection process, risking harm to your brand. (Customers might mistake the attitude of the debt collection agencies you use for yours).
Chaser understands this problem and knows that unpaid debt is a reality for many firms:
Most of the time, using a debt collection service arises from an honest business reality that every company is familiar with - the necessity of being paid for your work.
Chaser also knows that it is harmful. Non-payment can lead to lost revenue and an inability to pay staff and suppliers (even if the business is profitable).
However, Chaser believes there is a better way to address debt collection (at least, at the start). This approach offers a soft touch, avoiding nightmare phone calls and drawn-out court battles that reduce goodwill.
This post explores the various stages of delinquency, signs it's time for debt collection, the conventional debt collection process, Chaser's alternative methods, and additional considerations, such as the impact on client relationships. By the end, you should know when to escalate invoices to a debt recovery agency.
Most of the time, using a debt collection service arises from an honest business reality that every company is familiar with - the necessity of being paid for your work.
Stages of invoice delinquency
The UK does not define official stages of invoice delinquency. However, most firms follow a timeline similar to the following:
0-7 days after due date: A gentle reminder
Sending a gentle reminder to customers 0 to 7 days after their first delinquency can help nudge them in the right direction and ensure you collect any funds owed. Customers may have forgotten or simply missed the fact the payment was due.
When you contact the customer, confirm the customer received the invoice and remind them payment is due. This procedure applies subtle pressure and ensures it is top-of-mind for the client.
7-30 days after due date: More pressure
Once an invoice goes unpaid for over a week, it is time to apply more pressure. However, Chaser recommends avoiding direct or outright conflict at this stage.
One option is to issue a debt validation letter. This document proves the customer owes money and you have a basis for legal action.
Another option is to offer for the client to pay in instalments. Repayment plans can avoid the need to escalate collection agency procedures.
In some cases, customers can't pay. Usually, this occurs due to cash flow problems. In these cases, you may want to roll over old debt and wait until new money comes through. Going to a debt collector immediately might not have an effect and could lead to additional tension and hostility.
30+ days: Getting serious
Finally, if an invoice goes 30 or more days unpaid, it may be time to talk to a debt collection company. However, you need to weigh the pros and cons.
Again, Chaser's softly-softly approach can help. Its systems collect payments on your behalf, ensuring they return to the original creditor (you). Chaser avoids draconian measures and uses common sense methods to assess whether specific debt collection activities make sense.
Here's what Chaser suggests doing after 30 days of invoice delinquency:
- Ensure you maintain consistent communication with the other parties. Document contact attempts and responses, noting down or recording what customers say.
- Review your payment terms. Check they make sense to your clients. Confusing wording could be preventing consumers from paying you on time.
- Consider pulling a credit report from reliable credit bureaus for late-paying customers. These documents can reveal whether the overdue invoice is out of character. (If it is not, the customer may already have relationships with debt collectors).
Sometimes, the client loses their job or their business fails and they cannot pay. When this happens, sending a debt validation letter can help if the case goes to court. It should include the debt owed, the creditors (you), the debt requiring payment, the right to request the name of the original creditor and confirmation the debt is valid if not disputed within 30 days. If you aren't sure about sending these letters to clients or consumers because of a statute of limitations, speak to your attorney.
Factors affecting whether you should escalate a debt collector
So, when should you consider escalating an invoice to collection? What factors make an invoice more likely to be paid?
Fortunately, Chaser has some answers. Twelve months of collecting payments for users provides some insights you may find useful:
Days past due
Chaser recommends you escalate an invoice to collections before it reaches 90 days overdue. Evidence suggests that more successful collections happen when invoices are between 60 and 90 days overdue.
The primary reason is the recency of the debt collection in the debtors' minds. Payments are more likely on outstanding debts on delinquent accounts when the customers remember the original invoice.
Leaving things for more than three months can hamper collection efforts. Customers may disregard payment requests (believing they are wrong) or forget they owe money in the first place.
Number of invoices
Chaser also recommends keeping track of the number of invoices raised on an account. About 70% of the platform’s collection requests involve multiple invoices for the same customer. This makes sense as the case for collecting is stronger when the payment delays are repeated and represent a larger amount outstanding.
Moreover, from your perspective, more invoices mean more debt and a higher urgency to receive payment. However, from the customer's perspective, it can strain the relationship. Asking them for money daily or threatening legal actions could increase animosity.
Therefore, if an account has unpaid debts, don't assume writing customers a written notice will get them repaid. Instead, look for alternative methods that maintain a positive relationship with the debtor and increase the likelihood of successful debt collection work (i.e. using Chaser).
Payment history
Checking payment history is another strategy Chaser recommends. Customers with good credit history usually pay you at some point, even if it isn't immediately.
Look back at your records for the client, comparing the invoice issue date to the receipt of money to your accounts. See whether the overdue debt is part of a pattern or new.
Using credit bureaus to pull up a credit report can help you determine if a customer is paying their other debts (such as a business or mortgage loan). The need for a collection agency may become more likely if they are.
The value of the relationship
Chaser recommends considering the value of the relationship before escalating the situation and calling in the debt collectors. You want to think carefully about the consequences of pressing for debt repayment too soon.
Weigh the decision to pursue fees owed against the future value of the client. If the customer is happy with the service and paid on time in the past, it may be worth providing a gentle nudge, even if the money is more than seven days late.
The attractiveness of an instalment plan
Chaser also suggests considering the attractiveness of an instalment plan when escalating. When the client is a company or individual with poor cash flow but an otherwise healthy financial outlook paying monthly fees with reasonable interest rates can be superior to legal actions involving an attorney.
Invoice amounts
Finally, Chaser suggests checking the invoice amount. Data suggest businesses generally do not escalate invoices below £300 mostly due to the effort involved. Diverting staff to administer late payments costs time and money (that they could spend better elsewhere).
Unfortunately, some customers know this and wait to see what happens. Hanging on old debts until the last minute or forgetting about them is a popular tactic if they assume firms won't take them to court after the final collection letter.
Chaser helps by making it clear that strategies like these won't work. Fair debt collection practices prevent these behaviours and ensure businesses receive the funds they deserve.
9 tactics to get customers to pay before escalating to a debt collection agency
Ideally, businesses want to avoid going to a debt collector (for the reasons mentioned). Creating animosity can make debt collection more challenging.
Fortunately, various tactics help companies, lenders and other creditors to make delinquent invoices less likely. Here’s what to do:
Prompt invoicing
Send invoices to customers when delivering a product or service. The more contemporaneous you can make it, the more likely a customer will remember and pay.
Provide clear payment terms
Make repayment terms clear. Customers should know the date when they have to pay, any late fees and a preferred payment method.
Provide an early reminder
Provide clients with early reminders, letting them know about the money owed and when you expect them to pay. Try to avoid delays between delivering services and making your fee demands known.
In rare cases, you may face a statute of limitations. The law in England and Wales gives you up to six years to claim a debt. Longer than that and you may forfeit whatever money is owed where debt becomes "time-barred." (If you do business in America, check each state's statute of limitations to see when you must write off debts).
Avoid being aggressive
Don't be overly aggressive when attempting to collect money. Chaser recommends remaining polite and professional at all times. Emotionality may reduce the likelihood of outstanding debts being repaid.
In the UK, consumers can complain to the Financial Ombudsman if a company, debt collector or other agency harasses them over unpaid debt. In the U.S., debtors can go to the Federal Trade Commission if they do not adhere to fair debt collection practices. These complaints may delay debt collection further.
Check their credit report
Check the debtor's credit report. A poor score is a red flag and suggests the customer has credit card debt, outstanding loans, or council tax arrears. Knowing their status can inform what you do next (i.e. whether you go straight to a debt collector or use softer approaches to encourage payment).
Maintain a professional tone
Avoid talking in a way that might make people argue. Firms should remain courteous and patient even if the debt is well overdue.
If you find this hard emotionally (because you run a small business), hand it over to Chaser. Automated processes can avoid hurt feelings and increase the likelihood of getting paid, regardless of how much time transpired since you sent the original invoice.
Personalise communications
Talk to customers personally. Being on first-name terms can help make payments more likely. It can also help if you are compassionate and understand the situation from their perspective to find a win-win solution.
Use positive reinforcement
Incentivise clients to pay on time with discounts for early payment. Building healthy habits can reduce debt risk and prevent you from having to chase up your accounts receivables.
Gradually increase pressure until the final demand letter
Finally, start with gentle reminders signalling your intention to collect old debt owed. Increase the urgency of letters until reaching the "final demand," signifying possible legal action.
Signs it's time to call the debt collectors
While the above tactics can be effective, they won't work for all clients. Sometimes, you need extra help.
With Chaser, you don't have to go to debt collectors immediately. The collection agency works within the law to continue encouraging payments (so you don't have to).
1. Ignored communications
Chaser recommends reaching out if clients are ignoring your communications. Such actions may indicate debtors are unwilling to pay what they owe intentionally.
A debt collector may be necessary in this situation if the action is deliberate. For example, if a client is receiving and responding to regular emails but not those asking for payments, that could be grounds for escalation.
To resolve these situations, consider phoning the client and speaking to them on the phone. Ask them if they received the invoice and when they intend to pay. Then, write down the date they tell you. Ideally, it should be immediately if the request is overdue.
2. Disputed invoice
Chaser also suggests reaching out if customers dispute what they owe. Debt collection might be helpful in these situations, but not immediately.
Start by opening communication with the client to learn more about the reasons for the dispute. Usually, it will be a problem with the invoice itself (i.e. the figures are wrong) or related to your products and services.
If it is the first issue, change the details in the invoice (if you made the mistake) or explain to the client why the invoice is correct (and why their complaint is invalid).
If it is the second issue and there is a problem with your products, you may need to negotiate but be careful. Lowering your prices or offering a discount could be an admission of low standards.
If these strategies fail and the customer still doesn't pay, consider escalating. A debt collection agency can help get to the bottom of the issue and collect fees. Better yet, Chaser can collect on your behalf without using the aggressive tactics common in the debt collection agency industry.
3. Client financial difficulty
Finally, Chaser recommends getting in touch when the client is facing financial difficulty. While you might sympathise with their hardship, you also need to protect your interests.
First, gather as much information as possible about the financial difficulties the client is facing and any existing collection efforts. Find out if the customer has other lenders (if possible) and whether their original creditor sold the debt to another party now requesting payment.
Second, provide the customer with an alternative payment plan. Offer a discount for early settlement, taking their financial situation into account.
Finally, use debt collectors as a last resort. Consider using Chaser's services instead to collect the fees they owe.
How Chaser helps you avoid using a debt collector
Most businesses would prefer to avoid using debt collectors or a collection agency to collect outstanding debt. However, many believe they don't have a choice. Firms either pursue fees owed or write off debts and let their clients get away with not paying.
Fortunately, there is a third way with Chaser. Using this service automates the debt collection process and improves recovery.
For example, Chaser lets you inform customers of outstanding debts through letters, SMS, phone calls and email. The tool can track communications, checking whether clients received them.
These tactics maintain a positive relationship with the client during the collection process. It is a straightforward innovation that reduces the risk of filing with an attorney.
Common concerns using a debt collector (and how Chaser is different)
Using a debt collection service doesn't always feel right. Sure, consumers owe you fees, but you don't want to do anything that might make them hostile to your enterprise.
The purpose of this section is to address these issues and show you how Chaser solves them. Discover various factors that make business owners like you worry, and how automated follow-up could solve them.
I have a few eligible invoices, but I'm still unsure if it is the right approach
- Chaser emphasises the long-term development of its users in everything, which is why it takes a personal and friendly approach to collecting your debt.
- Chaser focuses on getting you paid while maintaining and protecting your customer relationships.
- Chaser trusts its processes and expertise: it doesn’t charge any fees unless the invoice is paid. It's no win, no fee.
I want to use a debt collector, but I am worried about ruining my relationships with my clients
- Chaser implements intelligent strategies to minimise conflict and maximise the likelihood of getting paid
- Chaser takes a procedural approach, eliminating the risk of emotionality souring relationships
- Chaser doesn't use the strategies of debt collectors, preferring a nuanced and technological solution
My payments are too old to use a collection agency
- Chaser can help you claim any fees owed to you as long as it is not time-barred under the law. The statute of limitations is six years in the UK
- Chaser can automate the collection of older payments using the same tools as newer ones
- Chaser can apply pressure strategically, speaking to key stakeholders
I want to use a debt collector, but it could damage my brand
- Chaser avoids the traditional harsh approach of debt collectors
- Chaser implements a positive and professional approach, ensuring full brand protection
- Chaser ensures it acts courteously whenever dealing with customers
I am worried using debt collectors will be a time-consuming process
- Chaser offers a streamlined and automated service that frees up your time
- Chaser puts emails, texts, and letters on auto-pilot, letting you focus on your business
- Subscribers save countless hours every year avoiding rote administrative tasks
Some debt collectors aren't transparent about their practices
- Chaser provides a friendly online portal, allowing you to track your invoices and communication history
- Chaser shows you how to speak to customers and the strategies it employs in real-time
- See payment details in real time on the dashboard
Most debt collectors are ineffective because clients can't pay
- Chaser avoids inflexible approaches, tailoring debt collection to specific circumstances
- Chaser uses a mix of communication channels to increase the likelihood of successful recovery
- Flexible arrangements can help you recover most of your fees from a debtor without using an attorney
New to Chaser?
The purpose of Chaser is to help you spend less time on accounts receivables and more on your business. The tool monitors debt collections and helps you request repayment through various channels.
Try it for free or book a demo with us and see how Chaser could save you 20+ hours per week and get your company paid faster. Get everything you need for debt collection in one app, including quotes for what it will cost. Simply open a Chaser account, sync your cloud accounts, and start collecting. It's that easy!
