Question: How Do I Set Up a Customer Billing System? How Do I Collect From Customers?
When you start a business, one of your first tasks should be to decide how you will collect money from customers. If you don't get your money directly from credit cards or cash, you may need to bill these customers to collect your money. Follow these steps to set up that billing system:
Answer:
Set up Billing Information
Before you can set up a billing system, you must capture the information about customers - who owes you money, how much is owed, and how long the amount has been owed.
Most business software programs have a customer module that allows you to enter this data. You can enter the invoices when you do the work or deliver the product, and enter payments as they come in. But you must keep up with this paperwork to keep track of accounts receivable (amounts owed). An accounts receivable aging report is your tool for deciding on a billing strategy for customers.
Send out bills
It is important to remember Collections Rule #1 when you consider sending out bills. Collections Rule #1 says that the longer a bill has been owed, the less chance you have of collecting on it. Many businesses send out bills to customers only once a month, which means they may wait up to six weeks to get paid (a month to send the bill, then several weeks before the customer pays). Send out bills more frequently, or make phone calls in between, to nudge remind customers to pay. Some companies send out bills in batches, with a portion of the customers getting billed every week. This batch billing helps keep cash coming in on a more continuous basis.
Plan Your Billing Letter Strategy
Set up a series of 3-4 billing letters to send to customers. Each billing letter you send should be more insistent and more direct. For example:
- Letter One - "Oops Letter"
This letter assumes the customer forgot to send payment; it is the "you probably sent this but the payment crossed our letter in the mail" letter. - Letter Two - What is Wrong?
This letter assumes the customer wants to pay but unusual circumstances are preventing payment. Letter two suggests payment alternatives, but gives a firm date by which payment must be made. - Letter Three - Why We Need to Be Paid
This letter is a little harsher, saying, "we did the work or delivered the product, now it is your turn to fulfill your end of the bargain and pay." It also gives a firm payment date, but it doesn't threaten collections. - Letter Four - The Ultimatum
This letter assumes the customer is not going to pay and states a firm date by which payment must be made or collections processes will be initiated. Do NOT send this letter unless you intend to actually go to collections on this debt.
You can shorten the process by skipping one of these letters and jumping ahead, if you feel the customer needs a bigger nudge. Letters should be sent no more than 30 days apart; remember Rule #1.
If the customer just won't pay, you'll have to take the final step - taking the person to small claims court or turning the bill over to a collections agency. Read more about your alternatives if a customer just won't pay.
Collecting by Phone
Instead of or in addition to letters, you can also attempt to collect debts by phone. Use scripts for your phone calls, and learn about the Fair Debt Collection Practices Act (FDCPA), to avoid being charged with harassment.
Putting Together a Billing System
In conclusion, make a decision on your overall strategy for billing. Will you send letters? Use the phone? A combination? When will you send out bills or make phone calls? Put together a general system, with letters and phone scripts, then have everything reviewed by your attorney to make sure you are abiding by the law. Then use your accounts receivable aging report to guide you as you work through these customer accounts and decide on billing strategies.
Back to Getting Paid: Setting Up Your Collections System