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Credit extension and collection is a vital part of a successful business. By extending credit, a company is inviting customers to do business with them. The risk of extending credit, however, is that the customer will not pay the amount due. Collections is the process a seller uses to receive the amount due. Regardless of whether internal or external collection efforts are used, adhering to certain best practices will increase the chance of collecting on an unpaid debt.
Enforce Payment Terms
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Payment terms refer to the length of time a creditor allows for a customer to pay an outstanding invoice. By instituting and adhering to payment terms, creditors are enforcing the terms of the sale. Each invoice sent to a customer should clearly identify the payment terms applied to the sale. By clearly notifying the customer of the payment terms, the creditor lowers the risk of late payment on the invoice.
Contact Overdue Accounts
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Although payment terms are clearly listed on an invoice, some customers will not pay within the specified time period. An account is listed as overdue when it has aged past the specified time listed in the payment terms. Creditors should frequently contact overdue accounts to ensure that the customer is aware of the status of the invoice. Collection experts recommend contacting overdue accounts every 10 to 14 days.
Encourage Early Payments and Penalize Late Payments
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Customers are more likely to pay an invoice within the specified time period if they have the ability to receive a small discount on the invoice. Early pay discounts are an excellent way to encourage faster payment. Conversely, invoices that are paid outside of the specified payment terms should be charged a late fee. Both of these techniques are instrumental in getting prompt payment from customers.
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