How to handle debt so you always get paid on time

If your customers owe you money, the faster you’re able to obtain it using effective collection tactics, the better. Ideally, you want to reduce the chance of bad debts and pressure on your business’s cash flow.

It can be easy to neglect managing your debtors when you’re busy growing your business, but smart credit control is important.

So it’s important to have the skills to handle the people who owe you money well, especially if you want to avoid having to take them to court.

Successful debt collection is about good processes

As with most things, prevention’s better than a cure. If you have good processes in place for collecting debt, the less likely it is that you’ll have to chase debtors. And if you do, having the proper processes in place to follow up on late payers makes it much easier.

Tighten your credit control

Having stricter control over new debtors is the best way to limit your exposure to future bad debts. So make sure that you:

  • Ensure your business completes comprehensive reference checks before offering credit to new customers.
  • Set fair credit limits – and ask your staff members to notify you if a customer wants to go over their agreed limit.
  • Approve any additional credit extensions in advance.
  • Make sure you state clear payment conditions in your terms of trade agreement.
  • Make use of credit checks – this can be especially important for new businesses that feel pressure to gain customers. Try to avoid being careless with credit checks. It might come back to haunt your business in the form of cash flow problems up the road.
  • Terms of trade – implement a system whereby new customers have to sign their acceptance of your terms of trade before you offer them credit. Follow this up by emailing your terms (and any changes) annually to refresh their memories.

Structure payment terms

It’s important to put together your payment terms to encourage prompt payment. You could, for example, offer a 2% discount for customers who pay within 21 days.

Ensure that your terms of trade state exactly when you’ll start charging interest on any overdue amounts, along with the rate you’ll be charging. Don’t yield to customers even if payment is only a day late.

Whether you decide to make any exceptions for those customers that usually pay promptly is up to you – but be clear that it’s a once only exception because you value that customer’s business relationship.

Good organization is key

You’ll come across as an astute businessperson who takes payment collections seriously if you have a systematic approach showing your customers that invoices are a top priority. By being organized and able to quickly reference a customer’s account when they make contact, you’ll be more likely to get paid faster.

Some ways you can project a higher level of organization include:

  • Being professional – all written communication with your customers should be consistent, look professional, and clearly show contact details and the amount owed, along with expectations and payment terms.
  • Having a consistent schedule – by sending invoices at the same time of the month and following up after a set number of days.
  • Don’t show a layered approach – a customer’s first invoice will show the amount due and by when, but next month should state that they’re late in paying. Don’t have ‘late Month 1, Month 2, Month 3’. They are all late and should accumulate.
  • Flexibility for major customers – a degree of understanding may be necessary for your key clients who have larger bills to pay that help keep you in business. Phone calls or more personal letters to key staff may be warranted to entice earlier payments.

Address problems quickly

Identify and deal with problem payers as soon as you can. The sooner you start chasing the debt, the sooner you’ll get paid.

If you’ve got good accounting software, it’ll notify you of any unpaid credit sales as they become overdue. Many accounting programs will automatically flag overdue bills, as well as generate reports of unpaid bills showing how long they’ve been late.

What you’re looking to do is speed up the collection of late payers. You can do this by:

  • Calling them directly – to discuss how a resolution can be made quickly.
  • Visit in person – a face-to-face meeting is generally more effective.
  • Sending a legal letter – if all other options have been exhausted and you’re close to writing off the debt.


Small business owners often find chasing money owed to them like pulling teeth. It’s not pleasant and it’s not the reason you went into business. But when people owe you money, and it’s the lifeblood of your business, then you cannot afford to not take action. Customers will respect you for being firm but fair.

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