Debt Collection Strategies – Invoice Finance Charges

Are your debt collection strategies like most business owners or are you cashing in on slow paying customers by implementing Invoice finance charges and interest?
Debt Collection Strategies: Interest & Finance Charges

Imagine for a moment applying for a loan at a bank. You sit down with the loan officer and somehow manage to obtain a loan for $5,000 at 0% interest. Sounds a bit far-fetched and a little foolish on the part of the bank, doesn’t it? After all, why would a bank loan you money without interest? There’s nothing in it for them; there’s no financial gain for them in taking the risk

However, that’s exactly the kind of “foolishness” you and your business are engaged in with your debt collection strategies if you are not charging interest on your delinquent accounts. In fact, it’s even more so. After all, banks don’t really need the money, however, your business does.

Most businesses are in constant need of capital. In such cases, it is common for a business owner to borrow money from some sort of financial institution, be it a bank, private lender or other business capital. Regardless of the source of the loan, the business will have to pay a finance charge and interest on the money that they borrowed. And yet, no finance charges or interest payments exist in their debt collection strategies and invoicing system when attempting to collect the monies they are owed.

You may find it surprising that when implementing interest or finance charges into your outstanding debts, not only will payment be made faster, you will often receive the interest payment as well. It is a well-known fact that most companies will pay interest bearing invoices first and will relegate non-interest bearing invoices to a later date, often waiting until collection procedures have started. Most businesses use a revolving line of credit. By not paying the outstanding bill, your customer is able to earn, you guessed it, interest on that money

A question you need to ask is how important your services or products are to the vendor. If you are non-essential to the customer, you may find your invoices overlooked in favor of more ͞essential͟ suppliers. Having implemented finance charges into your invoices gives you leverage over the other vendors who do not. Remember, when sending an invoice to a customer, you are competing for their next available accounts payable dollar. It is how well you compete for that dollar that determines your success.

Another factor to consider, by having a finance charge in place, you gain leverage over your customers by having the ability to waive the finance charge in lieu of timely payments.

By applying interest/finance charges to your accounts payable and debt collection strategies, you will help speed up the payment of your invoices by training your customers to either pay according to your terms or to take advantage of your offer to extend your accounts receivables and pay the interest cost. What you will find is that customers will often prefer to extend the collection period paying the interest instead.

Think of debt collection strategies as a chess game: you need to outthink your opponent and stay at least one move ahead of them.