Collecting debt from your buyers can often feel like playing a game of catchup and can have a large negative impact on your company’s bottom line. If your clients are consistently late in their payments, your company will suffer. The best way to make debt collecting less frustrating is to not need to do it in the first place. By utilizing a preemptive debt collecting strategy in the contract writing phase, you can ensure that debt collection is not a hassle.
Why Should You Use Interest and Late Fees
The best way to prevent having to wait for people and companies to pay their debt on time is by including late fees and interest rates in your initial contract. Not only will this encourage your debtors to pay their bills on time, but it can also help your company make money back from late invoices. Companies that don’t receive payment for their services on time might begin to accrue their own late fees because they are missing payments as well. There are clear benefits to adding interest rates and late fees to your client’s contracts, although many companies find it difficult to implement this system for fear of straining their relationship with their clientele. It should also be noted that many states have restrictions on how much interest can be charged for late payment.
How To Add Interest and Late Fees Effectively
Transitioning into a late fee and interest structure can be difficult for younger companies. You do not want to damage your company’s relationship with your clients. This is why some companies change the perspective from a late fee to an early payment incentive. Offering two different prices depending on if your client pays you earlier rather than at the deadline can inspire some companies to be ahead of schedule. Phrasing your late fee structure as an early payment incentive is a good way to make the transition into this payment less jarring for clients. Another strategy is to create a grandfather clause for existing clients that are often paying on time already. Companies who use this method only apply late fees to new clients and clients that are inconsistent with paying their bills on time. If your company uses this method, we recommend contacting your older clients before adding a late fee or late payment interest rate.
Although the implementations of late fees, interest rates, and early pay incentives can help your business avoid having to collect a debt, it may not be enough for all of your clients. If you are struggling to collect the debt owed to your company, consider hiring a collection agency like Alexander, Winton & Associates. Contact us at (662) 892-8591.