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Updated Dec 20, 2023

11 Debt Collection Strategies to Implement

If you’re chasing overdue payments, these debt collection strategies can help you collect what you’re owed.

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Max Freedman, Business Operations Insider and Senior Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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There’s always a chance that certain clients won’t pay their bills in a timely fashion. Sometimes, that’s because your clients have numerous invoices to pay within a certain period and forget about your invoice. Other times, it’s because a client lacks the cash they thought they’d have to afford your services. The good news is that you can reduce your number of unpaid invoices with the debt collection strategies below.

Not interested in trying these strategies for yourself? If you just want to outsource the job, consider our list of the best collection agencies for small businesses.

11 debt collection strategies for small businesses

Try a few, some, most or all of these collection strategies to streamline your debt collection process.

1. Review your invoices.

Sometimes, nonpaying clients haven’t paid yet only because your invoices don’t make it clear that payment is due within a certain number of days. You can minimize such slip-ups on your end by regularly reviewing your invoicing policy. This approach means looking at how you create your invoices and making sure that each of the following is present:

  • An invoice date
  • Contact information (name, address, phone number and email address) for both the creditor and debtor
  • A unique invoice number or another identifier
  • Payment terms and deadlines, including acceptable payment methods
  • An itemized list of services with a unit price, quantity and total price for each line item
  • A clear and obvious total invoice value

Editor’s note: Looking for the right collection agency for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

2. Review your invoicing policy.

You should look at not just your invoices, but also your policy for sending invoices. If you bill your clients monthly but find yourself regularly lacking cash flow, shift your policy to bimonthly invoicing. Alternatively, if you typically send invoices on the final business day of the month, try sending them on the first day of the next month. This way, your clients that conduct top-of-the-month payment runs are less likely to miss your invoices.

3. Review your invoicing technology.

Perhaps your company is using a Word or Excel template to generate invoices. This approach, though certain to ensure consistency, involves extensive manual work that can introduce needless human error in your invoicing practices. Consider pivoting to invoicing technology to minimize these errors and save time.

Invoicing technology can also track client interactions with invoices, automate follow-ups for unpaid invoices, auto-populate invoice fields and more. To learn more about invoicing app options, such as Square, Invoice2go, QuickBooks Online and FreshBooks, read our guide on how to find the best invoice software.

Did You Know?Did you know
We’ve reviewed some of the best accounting software and invoicing tools available. For example, you can check out our QuickBooks Online review and FreshBooks review to find out more about two market leaders.

4. Review your billing communications protocol.

How you deliver invoices to clients and follow up can affect how quickly you receive payment. Many businesses submit invoices through email or apps and then follow up unpaid invoices with brief emails, but email may not be suitable for more pressing debts. Set an internal policy to pursue debts more than 14 days late with phone calls, which debtors often find much harder to ignore than emails.

5. Make client payments easy.

Invoices should indicate which payment methods your company accepts. However, simply stating your accepted payment methods doesn’t inherently facilitate easy payments. For example, don’t just state that you accept payments via PayPal; include a clickable PayPal link a client can use to pay.

6. Present your billing terms immediately.

Whether you have a separate credit policy or standard invoice terms, you should make all your clients aware of your billing protocol. This could include having qualified clients sign your credit policy agreement as part of the initial contract or adding legal text to your invoices that explains how you might go about collecting unpaid debts.

7. Confirm each client’s payment process.

It’s one thing to file an invoice with your business contact at a certain company; it’s another to file an invoice with the company’s accounting department. Sending invoices to your contact at a client company doesn’t guarantee your invoice will find its way to the accounting team, and an invoice delayed in reaching accounting gets paid later. Your business contact is often not your accounting contact, so ask your clients with whom you should file invoices.

8. Determine how to handle consistently late clients.

It’s inevitable that at least one of your clients will regularly pay late. To handle these clients, you can extend your payment terms just for them to fit their needs, but stronger individualized collection strategies exist.

For example, if your late-paying client rarely responds to emails but is quite responsive to phone calls, instruct your accounting team to call this client within a certain period after payment is due. Alternatively, if you have experienced late payments through one specific form of payment from this client, offer it the chance to switch payment methods. These individualized collection strategies might encourage your client to pay.

9. Be proactive about payment.

Instead of waiting for your payment’s due date to arrive (hopefully along with payment), call the client a week before the due date to discuss your services. Ask if any issues with your service might cause the client to delay payment. Repeat this call a week after the due date if the bill hasn’t been paid, and write down any payment promises your client makes so you can follow up properly. Stick to phone and not email here, as phone calls are much tougher to ignore.

10. Don’t do it yourself.

Far too often, small business owners task themselves with overseeing debt collections at the expense of their more direct business tasks, such as planning and providing services. If you have the budget, you should hire an accountant or bookkeeper, whether an in-house staff member or a third-party service.

An accountant or bookkeeper can oversee the invoicing and payment process from start to finish. That means creating and sending invoices, recording payments, and more. A dedicated finance expert is especially helpful if your clients also have their own finance teams, as different companies’ finance teams may better understand one another’s circumstances. Accountants can also help you with tax compliance and other regulatory needs.

11. Hire a debt collection agency.

When a client’s debt goes unpaid, ignored or resisted for long enough, you may feel the need to turn to a debt collection agency. Small businesses can hire debt collection agencies for third-party expertise in collecting debts from nonpaying clients, but this is risky. For starters, it’s a surefire way to burn bridges with the client. It’s also quite expensive, with costs ranging from 25 percent to 50 percent of the debt being pursued. 

If you’re a freelancer trying to collect debts, you can also benefit from working with a debt collector, provided the sum of your outstanding contract is significant enough to meet agency minimums.

That said, sometimes hiring a collection agency truly is the only option besides hiring a debt collection lawyer. You’ll know this is the case if your debt is over 90 days past due and other approaches, such as resending invoices with late fees or interest, haven’t resulted in payment.

If you do have to go the collections route, consult our collection agency reviews to find the best partner for your needs. You should also familiarize yourself with the Fair Debt Collection Practices Act so you can be certain your agency is operating within the law and keeping you free of liability.

The importance of a debt collection strategy

When you make most or all of your money through B2B services, sometimes you’ll provide your services before your clients have paid. While common, this model is inherently risky because, when a client doesn’t pay their invoice on time, they create a gap in your cash flow. As a result, you’ll have less cash to cover your expenses. A strong debt collection strategy lessens the frequency of these gaps.

Additionally, a good collection strategy makes for easier relations between you and your clients. Since collection strategies involve you thoroughly explaining the methods clients can use to pay you and when they must do so, they make your client’s life easier too. For both this reason and cash flow reasons, you should periodically reevaluate your collection strategy. You can’t solve problems until you identify them, and some issues might not be obvious at first.

Key TakeawayKey takeaway
A well-planned debt collection strategy minimizes the chances of cash flow interruptions and tends to increase client satisfaction.

Don’t let overdue invoices languish unpaid

Cash flow is critical for a small business, and the longer your unpaid accounts receivable sits unaddressed, the more severe the consequences can become. Between your own collection strategies and the assistance of third-party experts, your clients might pay soon enough. Just be patient, thoughtful and tactful in the process, and you’ll be sure to collect the payments you’re owed.

Tejas Vemparala contributed to this article.

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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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