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Cash Collection Strategy

A quick guide about the strategy to apply for a rigourous successful cash collection. A four-step process that leverages on escalations.


The number of reminders you send and the reminders' timing also strongly influence the recall's effectiveness.

Principles

Don't wait too long to send your first reminder. In general, you can start your reminder journey five days after the due date.

The number of reminders you send and the reminder timing also strongly influence the reminder effectiveness.

In an overlay process where several rappels follow one another, it is critical to provide some escalations.

In practice, companies often send a strict first reminder first. And for the second reminder, the payment period suddenly becomes longer than the delay granted in the first reminder.

Increase the severity with each reminder to illustrate the essence of the reminder. We recommend to work in 4 phases:

  1. First reminder, not too severe;
  2. A second reminder, close;
  3. Last reminder, with interest;
  4. Formal notice and collection.

Phase 1. A Smooth Reminder

React the first time after a maximum of five days after the due date has passed. Call the debtor or send him an e-mail or letter.

Avoid standard letters. If you address the debtor personally, you will have a better chance of success.

The reminder should make it clear that its purpose is to obtain payment. But don't be too strict in this first reminder.

If the invoice is not paid, it may be because the customer 'cannot' or 'will not' pay, but sometimes the problem may also be with you. For example, if the goods have not been delivered as agreed or if they are damaged.

In the first reminder, you should, therefore, encourage the customer to contact you if they have any comments.

Avoid terms such as 'problem' or 'complaint,' as they are too negatively connoted. Also, do not threaten the customer with possible actions and consequences.

If you do not receive a response, proceed to phase two.

Phase 2. A Firm Reminder

In this second reminder, by e-mail or letter, ask more firmly for payment.

Your customer did not respond to the first reminder. You can, therefore, assume that there are no comments or questions.

The basic principles of the first reminder also apply in this case.

  • Politeness is essential, but at the same time,
  • the customer must understand that you take the matter seriously.

You want to be paid urgently, mostly since the customer has not made any remarks about your work. Fees and interest can already be announced in this second reminder.

If this second reminder does not produce a result either, send the latest reminder.

Phase 3. Last Reminder + Interest

Following through on your threats is critical, or you will undermine your credibility.

The client must feel it clearly: you want to be taken seriously. So use strong language and tone.

  • Clearly repeat the consequences of a default.
  • Claim interests and compensation if your terms and conditions stipulate it.

Phase 4. Formal Notice & Collection

If you don't get what you want, follow through on your threats.

Send a formal notice to your debtor. The time to use a collection agency or a lawyer is now. It works better before starting legal proceedings.

In this phase, you can assume that you are not the only one who claims that debtor. Do not hesitate to pass on the file, well documented, to a lawyer or collection agency.

Suppose the business relationship was still meaningful in the first phase, in this phase. In that case, the only thing that matters is getting your money back.


Are you still wondering how to write a payment reminder? Use our first payment reminder template.