You may be familiar with the situation: the invoice was issued on time, but payment has not been received. An overdue payment term can be problematic for any company - it puts a strain on cash flow and jeopardizes liquidity. But what to do if the customer doesn't pay? In this article, you will learn step by step how you can proceed to successfully collect your receivables without burdening the customer relationship.
The first step when the payment term has been exceeded is to send a friendly payment reminder. It is quite possible that the customer has simply overlooked the invoice. In your payment reminder, you should state the outstanding amount, the original payment deadline and a new deadline. Be polite but firm.
A phone call can sometimes achieve more than an email or letter. Personal contact helps you to find out why the payment has not been made.
If there is no response to your payment reminder, it's time to send a formal reminder. In the first reminder, you should again state the outstanding amount as well as the original and new payment terms. Also draw the customer's attention to possible default interest that may apply from the time of late payment.
In business-to-business transactions, default of payment usually occurs automatically 30 days after the due date and receipt of the invoice, unless otherwise agreed in the contract.
If the first reminder is also unsuccessful, you can send further reminders. The tone of each reminder should be somewhat clearer and you can charge additional costs or interest on arrears if this is legally permissible.
The amount of default interest is based on the prime rate of the European Central Bank (ECB). For business relationships, the default interest rate is currently 9 percentage points above the prime rate.
If the customer does not respond despite several reminders, you can commission a debt collection agency or initiate legal dunning proceedings. Both options are effective if all other attempts have failed.
The judicial dunning procedure is a cost-effective way of enforcing your claim. After initiation, the debtor receives a reminder notice. If he does not respond, you can apply for an enforcement order, which forms the basis for enforcement measures.
Despite all measures, you should not lose sight of the importance of the business relationship. An overly harsh tone or legal action could put a strain on the customer relationship. However, if the customer regularly falls into arrears or is unwilling to pay, you should act consistently to protect your company from damage.
If a customer does not pay, it is crucial to take a level-headed and professional approach. Clear communication, consistent dunning procedures and good receivables management will help you to successfully collect outstanding invoices. If necessary, you should consider taking legal action such as legal dunning proceedings - always with a view to maintaining the customer relationship.
How Diagonal supports you:
At Diagonal, we support you in keeping track of your receivables and successfully collecting outstanding invoices. With our expertise in receivables management, dunning procedures and taking legal action, we help you to secure your liquidity and maintain customer relationships at the same time. Don't hesitate to contact us - together we'll find the right solution for your situation!
P.S. We have explained the whole thing in more detail in our YouTube video ⤵️