By definition, debt collection means carrying out various actions to obtain payment of an unpaid invoice from a debtor. While some unpaid invoices are due to customer negligence, others have deeper causes that can make it difficult for a company to recover the debt. This raises the question of how to recover unpaid invoices.
This question is all the more important because it has a direct impact on a company’s cash flow, and therefore on its financial health. Implementing a procedure for managing unpaid invoices is therefore essential. Here are the key steps to follow if you want to recover unpaid debts successfully.
Analysis of the situation to recover unpaid bills
The first thing to do if you want to recover unpaid invoices effectively is to carry out an in-depth analysis of your receivables. To do this, you need to assess the extent of unpaid invoices in your business.
This involves a complete inventory of the number of unpaid invoices and the corresponding amounts. It is also necessary to identify the customers affected by these unpaid invoices. To fully understand the situation and deploy the appropriate action plan, take the time to analyse the potential causes of these late payments. For example:
- Are the accounting departments less responsive during the summer?
- Have customers received their invoices?
- Are payment terms and conditions clearly and prominently indicated on all contractual documents (contracts, terms of sale, quotations, invoices)?
This initial analysis will enable you to implement corrective measures if necessary and to consider the various collection strategies with greater clarity. However, in order to prevent unpaid invoices from multiplying and therefore affecting the company’s working capital, it is advisable to regularly monitor the payment of invoices by customers. By identifying unpaid invoices early on, you can react more quickly and effectively.
How do you collect outstanding debts? Collection strategies
The first strategy for recovering a company’s debts is to establish proactive communication with the customers concerned. You should contact them directly by telephone or e-mail. During this exchange, you need to adopt a firm stance, while remaining friendly.
The main aim is to understand the reasons for the unpaid bill and to find a rapid amicable solution.
For example, it may be possible to agree on a repayment plan with several instalments if the debtor’s financial capacity does not allow him to pay the bill in full immediately. As part of the amicable debt recovery process, you can also send out reminders and monitor payments on a regular basis.
If a reminder letter is unsuccessful, or if you fail to comply with the payment schedule, you can send a formal notice to your debtor. Among the various debt collection procedures, a formal notice is the last step before initiating enforced debt collection proceedings. Depending on the amount outstanding and your relationship with the debtor, you can initiate collection proceedings:
- order for payment ;
- simplified debt collection via a judicial representative;
- summons for payment, in order to obtain a writ of execution.
In such cases, it is advisable to enlist the help of a professional to carry out the various procedures in accordance with the Code of Civil Procedure. Another alternative is to entrust the collection of unpaid debts to a debt collection company.
This company will carry out the various amicable collection actions, and possibly take the case to court, on your behalf. In return, it receives a percentage of the sums recovered in the form of a commission.
Use collection software to recover unpaid bills more efficiently.
Negotiation techniques for recovering debts
Negotiation techniques should not be overlooked when collecting debts. They are highly effective tools for obtaining payment of an invoice without having to resort to legal action. One of the techniques for recovering unpaid debts is to negotiate with the debtor.
This makes it possible to maintain the commercial relationship with the customer, while obtaining payment of the debt, even if this means spreading it over time or granting additional payment time. Negotiation techniques for recovering unpaid debts are based on two essential elements. Firstly, it is essential to maintain a positive attitude and a professional approach. To achieve this, it is advisable to remain factual. This will be much more productive than letting your emotions do the talking.
By being proactive and maintaining contact with the debtor in arrears, you will have a better chance of recovering your unpaid debts. On the other hand, to recover unpaid debts, you need to actively listen to the person you are dealing with. This is a specific posture, because it’s not a question of listening to the other person in order to respond, but of listening to them in order to understand them.
Do not consider the reasons given for unpaid debts as excuses given by your debtor, but as explanations to be taken into account in order to find a joint solution. This will enable you to reach a satisfactory agreement with your customer without having to use legal collection techniques. Handling negotiation techniques also means being able to clearly explain the consequences of not paying the invoice. This can be :
- blocking the customer account, making it impossible to place new orders. This can be very damaging to your business;
- the application of interest and penalties for late payment;
- a reduction in payment times in the future, or even the obligation to pay cash.
How do you recover unpaid bills? Optimising internal processes
Another good practice for recovering unpaid debts efficiently is to optimise internal processes. There are a number of ways of doing this. First of all, you can optimise collection processes by automating the following actions. 
Collection software automatically detects unpaid debts and sends out reminder letters.
Similarly, the file is updated as and when you receive payments. To easily identify unpaid invoices, you can also set up a monitoring system such as accounting lettering. This not only saves time, but also makes you more efficient by being highly responsive.
This increases your chances of reducing payment times for unpaid debts, and therefore optimising your working capital requirements (WCR). What’s more, your collection staff can concentrate on the most complex cases.
By way of example, CashOnTime is a complete solution, published by DIMO Software, that structures the management of receivables from the automation of payment processing to debt collection. Credit management, debt collection, litigation and lettering solutions are at the heart of this collection software.
In addition, to optimise in-house collection procedures, it is necessary to train teams in best practice. This applies not only to the accounting department, but also to sales staff. Indeed, the collection policy applies from the moment contracts are negotiated, particularly the rules applicable to customer payment terms. Staff training also involves getting to grips with tools such as debt collection software, so that they can make the most of them.
Conclusion
Recovering unpaid debts is crucial to a company’s financial health. To collect debts effectively, it is essential to adopt effective collection strategies.
This means developing the negotiation skills of the teams responsible for monitoring outstanding debts, as well as optimising internal processes. The combination of these best practices enables creditors to recover the vast majority of unpaid debts and reduce the risk of unpaid debts in the future.
I optimise my debt collection with CashOnTime.
