Video credit: ©️ Mikhail Nilov
Whatever the volume, late-paying customers represent a significant risk to your cash flow and strain your relationship with them. Be it a continuously past-due customer or a one-timer who completely ghosts you, you’re still responsible for following up and escalating until the bill is paid. Thankfully, tactful and professional methods can help you handle past-due customers effectively. We detail common reasons why customers fall behind payments, provide different options to follow, and advise you on how to prevent past-due accounts from recurring in the future.
Common reasons why customers fall behind payments
There are different reasons why customers don’t pay their bills on time. Some are legitimate excuses that require some leniency on your part. Others should be taken with a grain of salt and approached strategically. Of course, being proactive about it can lead to more positive outcomes. The challenge lies in doing so without fracturing your customer repayment journey.
The most common reasons customers give when they miss a payment include:
- Financial difficulties
- Not a priority
- They forgot
- No repercussions
Financial difficulties
Let’s be real—not being able to afford to pay an invoice or bill on time is an honest excuse a customer can make. In our 2021 survey, Past-due in 2021: New expectations in collections, 43% of respondents admitted that they didn’t have the money to make payments. The cause can be entirely personal or directly correlated to the hardships of the economic landscape. Either way, prioritize showing compassion when dealing with these accounts, especially if it is a loyal, longtime customer.
Not a priority
Sometimes, more important bills or debts line up in your customer's list of priorities before you—such as utility bills. Once again, a humane approach can help protect your relationship with these customers unless it becomes a constant excuse not to pay you. If that's the case, you will have to get strict and even rethink the relationship.
They forgot
According to our 2021 survey, participants mentioned having forgotten to make a payment as a reason to be past-due. Why would that be the case? Unfortunately, companies often fail to contact or engage their customers proactively. Gone are the days when being reactive was the only option for companies to deal with late payers. Nowadays, you can use data analytics to predict which customers are likely to be past-due in the near future. Instead of reacting after the customer becomes past-due, you can be proactive by taking preventive measures ahead of time.
No repercussions
Perhaps you haven't been strategic about your tolerance for late payments, and now some customers take advantage of your unregulated generosity. Once you start being more flexible with customers to make partial or extended payments, be sure that your related policies detail the tolerance parameters and the severity of consequences if trespassed. Be clear about the repercussions a customer is accountable for if recovery of the past-due amount isn't successful.
What to do when a customer is past-due
Late payments are manageable. Whether the reasons behind late payments are intentional or unintentional, many preventive measures can be taken. Then, what’s the best way to collect past-due accounts? Try these 3 steps:
- Be consistent
- Adapt your language
- Optimize your repayment journey
1. Be consistent
Staying consistent will establish how serious you are about recovering payment. A customer is less likely to keep delaying when they are regularly reminded about their obligations as much as the entailed consequences. Depending on the industry, companies are entitled to escalate collections by stages. Here are three commonly known stages in collections:
- Stage one. For accounts that are less than 30 days late, SMS notifications and email reminders linking to a self-service portal will work better than regular letters, especially if you are dealing with younger customers. For better chances of securing the recovery, offer flexible payment options and be firm as well as humane in your tone.
- Stage two. Once they’ve been late for 30 to 90 days, agent intervention might be thought unavoidable. Nevertheless, you can resolve unanswered or unopened emails by tweaking your outreach strategy. Try sending SMS reminders after one day if the email is not opened and an email after three days from the first email if the customer hasn’t paid. Verify that the reminders are sent when your customers are more likely to engage. We suggest reaching out on Wednesdays between 2 pm and 4 pm local time and Thursday between 9 am, and 11 am local time.
- Stage three. As a last resort, some companies may advise the past-due customer that their account has been written off and sold to a collection agency after 90 days. Doing so will hurt their credit score, and you will most definitely lose them as a customer. We advise rectifying the email content sent at stage one to avoid getting here. The email content puts the customer at ease and increases the probability that they will click on the payment portal link. Avoid sending threats—instead let the customer know the full amount they owe and provide a minimum payment you will accept in order to redress their account immediately.
2. Adapt your language
Don’t forget that words and tone affect how quickly customers pay. Be strategic and cautious with the keywords you employ when notifying them that they are past-due. For example, a study by Freshbooks (2019) shows that saying “Thank you” and “Please” will get you better results. You might also get paid sooner if you charge interest and specify a timeframe to pay you, such as 7 or 14 days. We found that messages with any threat (i.e., “credit”, “agency”, “collections”) are less likely to succeed. The email subject also affects your open rates and reduces your probability of getting paid to zero. Simple and neutral subject lines lead to the best open rates, as well as subject lines that state an offer opportunity (i.e., “Important notice concerning your [XYZ] account” or “Important [XYZ] account payment offer”).
With this in mind, avoid generic payment reminders for every customer. Craft your message to fit the situation with little jargon. Polite and straightforward communication will be more productive when you reach out to remind past-due customers.
3. Optimize your repayment journey
Make it easy and convenient for your past-due customer to complete the payment without agent intervention at first. Be accommodating by offering flexible payment arrangements and making online payments available. By providing customers with options, you’ll be setting yourself up for success. They’ll be able to pay you faster and provide you with valuable behavioral data that you can use to keep improving your collection strategies.
Remember that an optimized repayment journey relies on how successfully a company masters automation and how effectively it learns from the produced data.
Get a handle on your past-due accounts
Get a handle on your past-due accounts by sending consistent reminders, communicating strategically, and offering online payment options.
More importantly, adopt a proactive approach to help you prevent a good segment of your customer base from becoming past-due. As we’ve explained earlier, being reactive is no longer the only choice you have. For example, use your customer data to identify the accounts more likely to default; rank these accounts based on the risk of being late; then allocate the appropriate actions to those accounts. “Low-risk accounts” can be left alone in terms of action. Educate “Medium-risk accounts” on the consequences of becoming past-due, be it paying interest or losing other privileges. Finally, “High-risk accounts” will need more assistance by rescheduling or reducing installments.
Try working smarter, not harder. You might surprise yourself at the number of accounts saved from entering a delinquent state.
If you’d like advice from our experts, feel free to talk to us.
