requesting payment

    Financial resources are limited, and therefore, the frequency and timing of financial transactions are vital to a business. Although accrual accounting allow a business more time to make payments and conduct more businesses, if not properly managed, it can lead to serious financial problems or worse, bankruptcy.

    The account receivable collection period shows how long it takes for a business to receive its money. Management of these accounts involves keeping track of financial records of customers as well as following a system of communication and correspondence to ensure payment.

    Terms of payments can differ from one business to another, or from a customer to the other. Regardless of the terms, a well-devised system allows a company to keep track of and take necessary steps to receive payments. In case of a delayed payment, four steps can be taken to ask the customer to settle their accounts.

    These include informing them that an outstanding payment is due, reminding them that a payment is overdue, asking for an explanation and insist on clearing the account, and threatening to take legal action if no remittance or reply is received.

Requesting payment

Your account is due!

Based on the terms of payment upon which a customer is required to settle accounts, an invoice or a bill of exchange is usually sent to them. An invoice is often accompanied by a cover letter providing information on the details of the invoice as well as a request for payment. Here are some examples on asking for payment according to the enclosed invoice:

    I am writing to inform you that the goods are ready for shipping. As per our agreement, the account should be cleared before shipment.

    I am enclosing the invoice based on which the final payment needs to be made. Could you please let me know once the payment has been made?

    Please find attached your quarterly outstanding account. I would appreciate it if you could arrange for a check to be sent in order to clear the account so that we can move on to your new order.

 

The account is overdue!

If a payment is not made within the time period upon which parties had agreed, then it becomes overdue. In the case of a delay in payment, a customer or supplier may provide an explanation. However, if they fail to do either, an account receivable system can guide the staff to certain steps towards receiving payment. It is important that the staff know who is in charge of each step, and what they are supposed to communicate. Sales persons, members of the financial department, managers, or even lawyers may have to be involved.

 

Step 1

    As the first step, it is common to send an email or a letter to inform the correspondent that their bill is overdue and ask for an explanation. The wise thing to do is not make assumptions in such cases. It is possible that a customer may have not received the invoice, overlooked it, or is busy dealing with an issue.

    It is also possible than they have changes their method of payment, but failed to inform you about it. Therefore, sending a reminder and a request for explanation is the first step towards clarification of the situation. Here is an example email:

    We are writing to you concerning the outstanding July balance. Please find enclosed the invoice. Our agreement included payment against monthly statement, however we have not received a check.

    Could you please let us know the reason for this delay?

Step 2

    The first step was a reminder for the customer about their outstanding balance. However, if they fail to clear the account or respond to the correspondence, providing an explanation, then the second correspondence needs to be made with a small difference to the first one.

     Every letter or email can include the invoice or any outstanding payment as well as reference to any previous correspondence for more clarification. In addition, a firm request for payment can be made at this stage:

    Referring to the last two emails of July 5 and July 18 regarding your outstanding balance, I am writing to remind you that your account has not yet been cleared.

    Unfortunately, we haven’t’ received any response to the above correspondence. We have been waiting for your payment or an explanation, neither of which we have received.

    I insist that you clear your accounts by the end of the month. Please confirm that you have received this email and that you will clear the outstanding account by the end of July.

 

Step 3

    If there is no action or response after the second step, taking legal action may become an option. If a customer replies providing an explanation and asking for more time for payment, you may decide to allow them some time to clear the invoice or account. Being understanding of your customer’s situation in case of a serious problem is more beneficial than going through legal processes.

    A customer’s balance history can indicate whether the recent payment issues are temporary or whether it is habitual. If the relationship is not of importance, you can threaten to take legal action if the customer fails to explain delay and clear their account:

    Unfortunately, I have not received any response to my emails dated July 5 and July 18. We sent you an invoice on June 28 and requested a check for the outstanding balance, but have not received any response from you.

    We have given you a chance to provide an explanation, yet have received none. I regret to say that unless we hear from you within the next week, we will resort to legal action as a resolve.

 

Step 4

    Step 4 is the final step in the collection of accounts receivable. At this stage, the customer has either failed or refused to make payments. This stage involves providing relevant documents to a lawyer for legal action against the customer.

    This does not necessarily guarantee full payment in the near future. It is even likely that a percentage of the payment or even all the account has to be considered an expense if the customer does not have enough money or is bankrupt.

    Asking for reference or reviewing customer background with regards to previous payments is essential to decisions concerning customer credit. This can help prevent delayed payments and legal processes.

 

Conclusion

    A customer who has been making payments on time is more likely to go back to its routine after problems are resolved. On the other hand, a person whose bills are constantly overdue and fail to provide a response to your correspondence is probably going to act the same.

    Maintaining relationships with the former necessitates compromises, but giving a chance to the latter is bringing yourself closer to the end of your business. It is important to remember that the accounts receivable collection period has a notable impact on determining whether a business is a going concern.

    If there is no money coming in, it is much harder to keep operating. Keep in touch with your customers regarding their balance and devise a system to collect payments.

 

source/reference

– Oxford Handbook of Commercial Correspondence

 

You may also be interested in

Cash vs. Accrual basis Accounting

Liabilities: Balance Sheet Components Part 2

Conflict Management from EI Point of View

Written by 

Related posts