Article by Drew Coles member of the Chartered Institute of Management Accountants
At month end a statement detailing all outstanding invoices should be sent to the customer. This serves two purposes, firstly this subtly reminds the customer that there is invoices outstanding and secondly it allows the customer to get in contact with the company if they have not received all invoices on the statement.
Approximately one week after sending the statement an email should be sent to the customer politely asking for settlement. It is preferable to attach a PDF copy of the statement as well as the outstanding invoices and the email should be sent with a receipt to allow the company to see when it is received and opened.
Its widely accepted that the longer a customer debt is outstanding the harder it is to settle the outstanding amounts. This is generally true in all the cases we see and therefore it is critical to chase the debt as soon as it falls overdue.
Insurance can be used on customer debts and usually covers a percentage of the total debt and the organisation will need to check if the cost of the insurance is less than the cost of the bad debts if not recovered.
Using an invoice factoring or invoice discounting service with no recourse. Invoice factoring provides you with a percentage of your customers invoice upfront and the rest paid to the business on settlement minus a fee to the factor. Non-recourse factoring results in the company receiving all funds from the factor whether the customer settles the debt or not.