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Effective Debt Recovery

Simple Alliance, Kenya Limited


Overdue Debtor Accounts

Unsettled customer accounts disrupt your business’ cash flow. Such late accounts are likely to hamper your success. Proper debt management is thus vital to business sustainability. To manage unpaid accounts, you need to set up effective debt collection strategies.

Debt Collection Plan

Through this official system, you strive to ensure that owing debtors pay up.  To streamline the inflow of receivables, you could employ a string of phone calls and letters. Finally, you seek the services of a debt collection agency. The message conveyed via these communication channels is at first cordial. With the passage of time, your message becomes more insistent and serious.   

Procedure

Your debt recovery policy could comprise the following steps:

  • Client contentment call
  • Initial overdue warning
  • Second overdue warning
  • Initial collection call
  • Initial collection letter
  • Second collection call  
  • Second collection letter
  • Third collection call
  • Last collection letter
  • Engage a Debt Collection Firm

Customer Satisfaction Call

After delivering your service or product, allow three days to pass. Call your client. You conversation will touch on the following information:

  • Your customer’s assessment of your performance
  • Whether you satisfied your client’s requirements
  • That customer is about to receive their bill
  • The due date of the bill

First Overdue Notification 

Ten days after the invoice due date; send a written note to your client. You could include a duplicate invoice, stamped ‘Past Due’ into this letter. The note serves the functions of gently reminding your client of their owing bill in case they’ve forgotten or misplaced the invoice.

Second Overdue Warning  

Some 10 to 15 days after sending the initial overdue note, send out a mild, friendly, letter reminding your client to settler the due account. You could draft a brief non-threatening letter and attach a duplicate invoice.  

Template

[Date]
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________

Dear ____________

We recently mailed you a statement showing that your account is past due. Perhaps it has been overlooked. Here is another copy. Please send payment today, so that we can keep your account current.
Thank you.

First Collection Call

Some seven to ten days after you dispatch the second overdue warning, call your client and check out the reason for non-payment. While exhibiting courteousness, be sure to secure customer’s commitment to pay.  Be ready to deal with client’s excuses.

Initial Collection Note

Immediately after making the initial collection call, send a courteous, but direct letter to your client. Revisit the call’s content. Remind your customer of their commitment to pay.   

Sample

[Date]
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________

Dear ____________
This confirms of our conversation on [Date]. As we discussed, you will send us your payment in full. Let us settle this matter now. Please mail in a check today.
Thank you.

Second Collection Call

If the account is not settled by the 30th-40th day, call your client.  Using a polite but firm language, ask them to immediately pay up. Engage with client manage any payment constraints. In case immediate payment is not possible, secure your debtor’s commitment to pay up later.    

Second Collection Letter

Ten days after payment is expected from second collection call, dispatch the second collection letter.  In this letter, you communicate the gravity of your debtor’s delinquency. Demand instant payment.  Let your customer understand the short-term effects of non-payment. So as to confirm that your client receives this letter, and subsequent correspondence, send it via overnight mail or registered mail.

Sample

[Date]
[Name/address of debtor]
Re: Invoice # ____________
Amount due ____________
Date due      ____________

Dear: ____________
Your account is now seriously past due. If payment is not received within 7 days, we will be forced to suspend your credit privileges with our company. This is usually some ten days after client fails to pay up following the second collection call. We value you as a customer. Help us continue to serve you by bringing your account up to date immediately. Please mail us a check today.
Thank you.


Third Collection Call

Some 15 days after dispatching the second collection letter, call your client. Calmly and politely emphasise the gravity of the issue. Explain that your client has a single, last opportunity to pay up before you engage a debt collection firm or take other legal actions. Let your client know that their payment will restore their good relations with your firm. Also mention that your customer’s payment could ensure their good credit rating. be sure to secure your client’s commitment to pay by some specific date.     

Last Collection Letter

Seven days after you make the third collection call, send your client a demanding and stern letter. Reiterate the contents of the third collection call. Ask your debtor to pay up. Explain that you will engage a debt collection firm if your  client fails to settle their account.   

Sample

[Date]
[Name/address of debtor]
Re:Invoice # ____________
Amount due ____________
Date due      ____________

Dear ____________
This letter confirms our conversation on [Date].
You must take immediate action to make your account current. If we do not receive payment within ten days, we will be forced to turn the matter over to a collection agency, which may adversely affect your credit rating.
Please mail a check to us immediately.


Engage a Debt Collection Firm

Ten to fifteen days after sending the last collection note, note that you need professional help with your defaulting client. Two options could be contacting your lawyer or a debt collection agency. Before engaging the collection agency, ask your lawyer to call the debtor on your behalf to demand payment. Otherwise, you could seek a debt collector’s services. The debtor could prompt fast payment. You will however part with a substantial portion - 25 to 50% - of the owing debt.

Unsettled debtor accounts pose a threat to the success of your business. These debts could seriously disrupt your cash flow. Since cash is the ‘oil’ that smoothens the rotation of your business’ processes, cash flow crunches are likely to inflict severe dents on your business’ profile. To avert potentially catastrophic cash flow shortfalls, you need to institute efficient debt recovery mechanisms. These mechanisms constitute a debt management program. Such a program consists of sequential letters and phone calls. Of course, you need to note that your debtors could be genuinely in financial quagmires. As you make those phone calls and dispatch those letters, you need to put this fact into consideration. Your messages should begin on a cordial note. With the passage of time, the messages assume a terser, demanding outlook. After exhausting all friendly debt collection strategies, you could engage the services of a debt collection agency.

Copyright (C) 2016, Simple Alliance Kenya Limited

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