Module 1: In-House Collec�on Strategy

Lesson 6: Handling Disputes and Cash Flow Objec�ons

Disputes and cash flow will be your most common reasons for non-payment. Managing
disputes is a key step in the selling process of a business. Indeed, disputes are the consequences
of all the exis�ng issues in the company's internal processes.

It would be wonderful if every customer simply paid his or her invoices upon receipt.
Unfortunately, the reality is that in most businesses, it’s imperative to diligently monitor and
collect on past-due accounts. Here are 12 of the most common mistakes that greatly impact your
cash flow and lead to serious collection problems.

1. Not having a credit policy. Many small and medium-sized businesses do not take the time to
create and implement a credit policy that dictates the required payment terms that need to be
conveyed to your customer and the call to action if accounts become past due. In essence, a
comprehensive credit policy is a company’s road map that will greatly support its ability to
increase its cash flow and minimize the risk of selling on credit.

2. Not having a system to organize your receivables. There is a wide range of reasonable
accounting software packages that are easy to implement and use, while also fitting every kind
of company’s unique billing situation. If your company has not implemented the kind of system
that can produce a report of your current 1-30, 31-60, 61-90, and over 90-day accounts, then you
can’t even begin to take the appropriate action on past due customers. Having an automated
accounting program that can give you a clear lay of the land of your receivables should go without
saying.

It would be wonderful if every customer simply paid his or her invoices upon receipt.
Unfortunately, the reality is that in most businesses, it’s imperative to diligently monitor and
collect on past due accounts. Here are 12 of the most common mistakes that greatly impact
your cash flow and lead to serious collection problems.

1. Not having a credit policy. Many small and medium-sized businesses do not take the time to
create and implement a credit policy that dictates the required payment terms that need to be
conveyed to your customer and the call to action if accounts become past due. In essence, a
comprehensive credit policy is a company’s road map that will greatly support its ability to
increase its cash flow and minimize the risk of selling on credit.

2. Not having a system to organize your receivables. There is a wide range of reasonable
accounting software packages that are easy to implement and use, while also fitting every kind
of company’s unique billing situation. If your company has not implemented the kind of system
that can produce a report of your current 1-30, 31-60, 61-90, and over 90-day accounts, then
you can’t even begin to take the appropriate action on past due customers. Having an
automated accounting program that can give you a clear lay of the land of your receivables
should go without saying.
 3. Sending invoices late. Some companies, especially in consulting and other professional
service fields, tend to send their invoices significantly after the services are performed. When
companies send out invoices on a late schedule, the customer may not only forget about the
services that were provided but also have been conveyed a message that they can take their
time in paying the invoice. The general rule is that you should try to get an invoice to your
customer within one week.

4. Not updating customer information regularly. Far too many payments go uncollected
because the invoices went to the wrong address or the business was sold and someone new is
handling payables. These kinds of errors should be easy to correct by establishing an annual
confirmation process for updating all contact information.

5. Not invoicing as per the client’s requirements. Many companies have very strict
requirements about how the invoice needs to be formatted and the kind of information
required. Any deviation can cause your invoice to be kicked out of the payment queue and put
aside for “special handling.” Other companies have an accounts payable assembly line in place,
in which an invoice that doesn’t meet their submission conditions can again be held up until the
person in charge can deal with it. This is especially true when it comes to large corporations. It’s
always imperative to confirm their payable requirements so that your company can be paid
smoothly.

6. Making payment application errors. Whether payment is made by check, online, or wire,
payment application errors are one of the most prevalent errors. They not only cause accounts
to be misclassified as delinquent but can also lead to several other problems. For example,
when the wrong account has been incorrectly debited and the wrong account’s payment is
received, it is sometimes misinterpreted to be a payment in advance. In addition, when a
customer is contacted for their presumed late payment but has paid it on time, a feeling of ill
will can emerge between the customer and the supplier. Furthermore, a payment application
error can also become a legal dispute when notification of an account being paid was sent to
the wrong customer and is subsequently used as proof of payment down the road.

7. Failing to apply payments promptly. In line with number 6, checks that are not generally
deposited within six months, either by accident or through poor internal processing, may not be
honored at your bank. In addition to misclassifying the customer’s account as delinquent, the
inability to deposit the check after so many months may impact the customer’s goodwill in
reissuing the check.

8. Not monitoring and acting upon past-due accounts. Simply knowing that there are past due
accounts, but not having the personnel in place to take follow-up action on them, has no
meaning. As accounts become past due, whether it’s the accounting staff or having a full-time
in-house collector, a qualified individual has to be designated to make that call and confirm
with the customer as to when payment will be forthcoming.
 9. Not resolving disputes timely. No company is infallible, and from time to time, there will be
issues regarding the products and services sold. This will prevent the invoices from being paid.
It is imperative to understand what the problem is and then try and rectify the situation as
quickly as possible. Many times, companies will sit on customer disputes either due to a lack of
manpower or a lack of urgency on the matter. The longer the dispute remains unresolved, the
harder it will be to eventually collect the underlying invoice. As an important point in resolving
a dispute, try to collect any portion of an invoice that is not in dispute.

10. Accepting the runaround. It’s very easy in today’s business for people to avoid calls, emails,
and other means of communication. Don’t allow a company to give you the runaround. Be
persistent, and even if you have to go all the way up to the president of the company, reach the
person with whom you need to discuss an outstanding payment.

11. Not locking in a payment date. This is so important for any successful collection. Promises
to “pay soon,” “after I get a chance to speak with the boss” or “as soon as I get payment from
my customer” are very vague reasons and leave the door open to being unpaid. Make sure you
get a date for when payment will be sent, and depending upon the account, get it in writing.

12. Not being sufficiently aggressive in your collection attempts. Your credit policy should
include a general guideline of steps to take if promises for payment continue to be broken or
unreasonably drawn out. At some point, when the customer has demonstrated a complete lack
of faith and goodwill, it’s best to place the account with a debt collection agency or collection
attorney to continue with a more aggressive collection effort.

No one wants to have money issues or the stress that comes with a lack of timely payment.
Know and implement these 12 steps of action to help you avoid this hassle and improve the
quality of your business operations.

Disputes

Disputes that are brought to your attention early are more likely to be valid. But regardless of
when your customer raises a dispute, it is important to listen to their story before responding
and then act quickly to resolve the matter.

It’s not unusual for a dispute to involve only a portion of an invoice rather than the entire
amount. In those cases, focus on getting the undisputed part paid immediately, then focus on
further investigation of the disputed portion.

Quick attention to a dispute is key to maintaining customer goodwill and to getting paid. The
more quickly you respond, the more quickly you’ll be able to determine if it is just a stall tactic
or a valid claim. In the course of your conversation, take special note if a customer claims that
their salesperson told them something that differs from your payment terms or price. Based on
your relationship with your salesperson, you’ll likely know immediately if the customer’s claim
is a possibility.

If you determine that your customer’s claims are valid, you may decide to make a reasonable
modification to the invoice while clearly explaining future policy or pricing. If the dispute is not
valid, calmly explain your position and request payment.

How to Handle Disputes

A comprehensive collections policy should include guidelines on how disputes and

discrepancies should be handled. Before initial contact with a customer, the collections
professional should ensure that any internal issues are cleared up. These might include
unapplied checks, unused credits, or any special terms offered by the sales representative but
not applied to the account. If a dispute arises during interactions with the customer, handle it
quickly to avoid slowing down the receivables process. For example, if you wait a week to send
the customer a corrected bill, you’ve just put off getting paid by a week.

Managing exemptions to your collection Policy

Of course, there are always exceptions to established procedures, even with a collections
policy. Your policy should be structured and consistent but also flexible, so it can adapt to
changing times and uncertain environments

Nego�a�ng Term
Customers who are aware of their inability to make �mely payments may want to renego�ate
terms or arrange a payment plan. However, extending terms disrupts your cash flow. Perhaps
the customer is offered an extended payment plan, but with the extension, they agree to forfeit
discounts. If payment is s�ll late a�er renego�a�ng terms, the customer forfeits the right to
renego�ate for an extended period.

Cash Flow

Your customer’s business can and possibly will experience temporary cash flow problems from
time to time. Your willingness to work with them during lean times can lead to a good long‐
term relationship. Your goal is to validate your customer’s claims so you can work toward a
solution that is fair and reasonable to you both.

Start by listening fully to what they have to say about the situation. Let them take the time they
need to give you the full version. From there, explain that you understand their situation and
that your company has a policy to work with good customers who experience temporary cash
flow problems. This may help to set your customer at ease.
In the course of your conversation, allow them to propose a workable payment solution that
includes the details of where this money will come from. If the timeframe is reasonable, then
accept the plan and confirm it in writing. Ask that they acknowledge the plan by signing it as
well. The amount of the invoice and the history of the customer are also variables that you will
need to consider. Usually, payment installments made over a 2 to 6‐week period that includes a
same‐day payment are considered a reasonable agreement, and one you should take. Keep in
mind that if you agree to a schedule of 17 payments, ask for post dates before you end your
conversation. If it’s going to take longer, then you’ll need more information that you’ll then
need to verify.

Once you feel satisfied that you have the details, it’s time to validate your customer’s story.
Start first by talking to other creditors. Is the story consistent? Your next step is to talk to your
customer’s bank. If it’s a small bank or if it happens to be the same one that you use, you might
be able to verify over the phone whether or not a check would clear if your customer were to
issue you one.

If your customer does a meaningful amount of business through credit card sales, then request
the last 6 months’ worth of Merchant Statements. This will tell you how much money is
acquired through monthly credit card sales and if sales have dropped. It’s even better if you
have Merchant Statements on file from their initial Credit Application to compare to.

The knowledge you gain through these two phases will help you determine if the cash flow
claim is valid and if a payment plan is the best option or if things are far worse.

From all of the information you’ve gathered through understanding and validating the story,
you’ll be better equipped to answer the big money question for yourself:
Do they or do they not have the money to clear the debt they have with you?

If you conclude that the business is viable, but going through a temporary cash flow problem,
then establishing an extended payment plan over several months might be your best option. As
always, getting a down payment and small payments weekly is preferred than larger payments
monthly. If you conclude that your customer has no money (or a very limited amount) to pay
you and if you believe there’s a strong likelihood that your customer won’t be able to financially
honor an extended payment plan, then it’s time to consider a settlement. Once your customer
realizes this is the action you plan to take, it may be motivation enough for your customer to
clear your debt with whatever limited funds they have or can muster up by some other means.

While taking a settlement isn’t the best scenario, it’s not the worst, either. The worst case
would be not getting paid anything. And we’d all agree on this point: getting paid something is
always better than getting paid nothing.
5 Collections Strategies to Improve Your Business Cash Flow Now
By Stephen King | Cash Flow Management

1. Get Paid in Advance (If Possible)

When you start a new project or job knowing you won’t have a negative cash balance, you’re
already on the right track.

Getting paid in advance is the way to avoid situations where you need to chase clients that
delay payments.

Is it likely your clients will pay in advance? It depends on how much trust they have in you. In
some cases, it may help to offer a small discount for advance payment as an incentive.
Advanced payment gives you peace of mind by reducing the risk of non-payment.

It allows you to reinvest the money and lets you do better budgeting.

Ask for the largest amount you can get before you start work when they are in love with the
idea of working with you - 50% is standard in many industries.

Getting an upfront payment that covers your out-of-pocket costs will completely change your
company's cash flow.

2. Set Up a Retainer

Retainer billing is a no-brainer. It’s good for both you and your clients. A retainer program
makes it easier for clients to budget and smooth out their cash flow.

It's Easier Than You Think!

Look at how much your biggest clients pay you on an annual basis. Divide that by 12 to come up
with a monthly amount. Give them a proposal that lists the services they typically use over the
course of a year. Include a scope document that defines what they get for that monthly fee and
what’s out of scope and covered by a pre-approved work order.

Once you decide on the retainer amount, take it further:

• Set up recurring billing to automa�cally send out invoices

• Send invoices between five and ten days before the end of each month
• Put in your agreement that you will automa�cally ACH their bank account (on the first of
the month if you can), or
• For an extra fee, charge their credit card for this monthly amount.
This enables both parties to map cash inflows and outflows more easily. It helps you reduce
your billing and collections costs, and it helps them reduce their accounting costs

3. Assign a Collection Owner

A bad collection process will lead to unnecessary cash flow problems.

Don’t assign the collection to the receptionist or office manager unless you’ve made it clear
where it fits on the priority list and give them sufficient time to do it right.

Collections are often the last thing anyone wants to do, so oftentimes it rarely gets done well.

It’s really hard for a receptionist to make collection calls if he or she also has to answer the
phone. This is a cash flow mistake a lot of businesses make simply because the person making
the call doesn’t want to do it, hasn’t been trained in conducting effective collections calls; and
isn't given sufficient time for this time-consuming, stressful task. As a result, collections become
a low-priority job.

One option is to have the salesperson be accountable for the collection process. If they get paid
when the company gets paid, you’ll give someone incentive to make sure you get your money.

4. Automate collections

If you use QuickBooks® Online you can integrate the Funding Gates™ app, a receivable
management system, to automate your collection process. Growth Force uses Funding Gates to
set up automatic collection reminders according to our collection policy.

And when someone is late, it will automatically send a series of progressively strident emails
and make phone calls to get your money. Start at the largest balances that will impact your
cash flow forecast the most.

Finally, when all that fails, Funding Gates will send a weekly email to the key managers telling
who is late this week and which accounts you should watch. It shows how many customers
were called or sent reminders, so you get an early warning if your collection efforts are
faltering.

When cash is tight, most businesses separate their bills into a “must pay” or “like to pay” pile. If
you’re a company that’s calling after a bill is one day late, or if your proposal has a serious late
payment penalty, your bill will end up on the top of the “must pay” pile because it tells the
client you’re serious about collections.
By implementing these best practices, you’ll change the collections dynamic.

Do you want your client to pay you on �me? Show them you are serious about ge�ng paid on
�me...

• Send an Email Reminder 5 Days Before

• Make a Phone Call the Day Before

5. Call Clients 5 Days Before Bills are Due

An ounce of preven�on.

Most people wait un�l the invoice is 30 days past due to make the first call. That’s a big mistake.

Your first call to a client should occur between three and five days before the invoice is due.

Frame it as a client service call to check on the client's level of satisfaction while also checking
to ensure that the invoice was received and understood. And get a commitment as to when you
can expect payment.

Be ready to respond to any client service issues. People will tell you what’s wrong with your
service delivery model when you are trying to separate them from their cash.