5 Debt Collection Techniques to Use When Customers Don’t Pay

Unpaid invoices are more than just an inconvenience. They are an indication that your cash flow is at risk and that you may need to boost your debt collection efforts. Otherwise, you might end up facing a serious cash flow issue. Fortunately, there are many debt collection techniques you can use to recover money from slow-paying or non-paying customers.

Preemptive Measures to Keep in Mind

Chasing after clients to collect payment can be a complicated and stressful process. You can, however, avoid this issue altogether by implementing the following precautionary measures.

Research new clients thoroughly

Take time to learn about your client’s financial and credit history before doing business with them, especially if you plan to offer them credit. You can start with a simple online search. Google their name and their company’s name. Keep an eye out for court orders, notices of leans, or complaints on industry websites.

Then, you can take your research to the next level by conducting a credit check on your new prospect. This way, you can properly assess the client’s financial capability and credit worthiness.

Always have a contract in place

Make sure you always have a written contract in place, especially if you are working with a new client. This contract should include specifications regarding the scope of work, payment terms and schedule, and work/delivery deadline. It should also include policies on late payments and debt recovery.

Having all the important details outlined in a written contract will help prevent misunderstandings between you and your client. This will also give you a clear process to follow in case one party fails to meet their obligation. For instance, if your client does not pay their invoice on time, then they know they will be charged overdue fees.

Handling Clients Who Don’t Pay

Sometimes, despite your best efforts, there are still moments when you are left empty-handed. When this happens, you will need to act quickly. The faster you deal with overdue invoices, the higher your chances are of successfully collecting payment.

Here are some simple yet effective techniques you can use:

Follow up right away

Do not hesitate to follow up with customers when they fail to pay an invoice by the appointed date. You can either email them or give them a call to remind them that their invoice is already overdue. Ask if there are any issues that are keeping them from completing the payment and find out what you can do to help. Perhaps they need you to resend the invoice or to clarify certain charges. Another possibility is that they are confused with the payment process and need some assistance.

Make sure all communication with clients are clear, firm, and respectful. Remember that although your goal is to obtain payment, you still need to remain professional and maintain your business relationships.

Offer alternative payment options

Oftentimes, delays in payment are caused by simple and unforeseen issues. Perhaps their bank transfer did not go through or their checkgot lost in the mail. You can avoid problems like these by making sure your business offers a variety of payment methods. This will help make the process of settling the invoice easier and simpler for your clients. Plus, this can be an effective way to avoid late or non-payment in the future.

Hire a debt collection agency

If your attempts at contacting a client do not yield any results, then it’s time to hire a professional debt collection agency. Expert debt collectors have the experience, training, and skills necessary to successfully pursue debts while maintaining good client relationships. Plus, they have access to a variety of tools and resources that help make the collection process faster and more efficient.

Many debt collection firms offer a “no win, no fee” service, which means you will only pay them when they successfully recover your debt. This way, you won’t have to worry about incurring additional costs.

Outsourcing debt recovery can be an extremely beneficial move for your business. You will not only have the assurance that your overdue accounts are being taken care of by experts, but also have more time and energy to focus on other core business functions.

Send a Letter of Demand

Another option is to send your debtor a Letter of Demand. This document is typically used as the final reminder letter to the debtor before you take legal action. A Letter of Demand must state exactly how much is owed, what the debt is for, and when it needs to be paid. It can also include a warning that you will consider taking legal action if the debt is not paid by a certain date.

You can write the Letter of Demand yourself or have a lawyer write one for you on their letterhead. The latter option adds a sense of urgency to your letter and usually encourages prompt payment from clients.

However, it is important to note that although a Letter of Demand can be an effective debt recovery tool, it can also inflame a dispute between you and your client. So, before you send one out, take a moment to carefully consider the possible consequences.

Consider other recovery options

If you still don’t see any results after trying all the strategies listed above, don’t despair. Here are some other debt recovery options you can try:

Take the Customer to Small Claims Court

Through the small claims court, you can obtain a judgement debt against your debtor. You can then use this judgement debt to apply for a garnishee order—a court order that allows you to collect payment from a third party that owes money to your debtor. This third party can be your debtor’s employer, bank, or another financial institution holding money for the debtor. 

Claim the Debt as a Tax Deduction

Another option is to claim the debt as a loss for tax deduction. In this case, you may need to show proof that you did all you possibly could to contact the debtor and recover payment. This why it’s absolutely essential to make sure all the credit files and payment histories of your clients are organized, accurate, and up to date.

More often than not, your clients will be willing to pay their outstanding invoices without you having to go to any drastic measures. Just remember to keep a positive attitude and treat your customer with respect throughout the collection process.


Liam White

Liam White is the Head of Marketing at Slater Byrne Recoveries, a debt collection agency offering services in both Australia and New Zealand. He regularly maintains the company’s blog, where he posts articles discussing everything from the latest news in business finance to tips on debt management and credit control.

Sometimes missed payments can be caused by forgotten due dates which happened to me several times. A simple reminded before and afterthe due dates sometimes helps a lot with debt collection.

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