+44 (203)-5140-885 | +234 (0)802-9772-849 enquiries@augustushall.com

Best Practice Collection Methods


Get Close to the Customer

We apply the 80/20 ratio, i.e. it is important to identify the few major customers who buy 80% of their sales – therefore who pay the most.

The Few Major Accounts

Good credit agency reports can indicate the right level of credit. Businesses can get to know customers’ payments staff by visiting them at intervals.

Cultivate them to get priority treatment – as they would buyers.

Give them priority attention on queries and service.

The Mass of Non-major Accounts

Businesses must ensure they have the right individual’s name for letters and phone calls, perhaps from credit application forms or routine correspondence.

Make ‘Credit Terms’ very clear

Recommend the following tips to businesses :
In a payment Negotiation
It is professional, not anti-selling, to say ‘our business allows 30 days to pay – does that give you any problems? Discuss it, don’t duck it.

On an Order Acknowledgement

Stress payment terms, as a condition of sale supersedes any buyer’s terms. Send it to a named, responsible person.

On an Account Demand Letter

Include a paragraph for the client to sign, agreeing to comply with stated payment terms and conditions of settlement.

Use of Terms of Trade

Terms of Trade, also known as Conditions of Sale or Terms and Conditions, are designed to protect the seller’s rights, to limit potential liabilities and provide some degree of security for the recovery of the debt, following the supply of goods or services.

Equally, the seller will have his/her own terms. What is essential is that both contracting parties (i.e. buyer and seller) agree Terms of Trade between them before, or at the time that a contract is made. This will set the ground rules between the contracting parties. It will mean that both parties know exactly what is expected of them and may prevent unnecessary disputes.

A good time to agree Terms is when the seller has had their credit facility letter formally accepted by the customer.

Areas which should be mentioned in a company’s terms of trade include:

  • Definitions (e.g. "buyer", "seller")

  • Quality

  • Price

  • Quotations

  • Delivery/date/arrangements

  • Risk and property/retention of title

  • Terms of payment

  • Time limit for raising disputes

  • Right to interest

  • Loss or damage in transit

  • Acceptance of goods

  • Variations to contract

  • Patent rights/indemnity

  • Force majeure

  • Jurisdiction/applicable law

  • Assignment and subletting of contract

  • Right to progress and inspect goods

  • Warranties and liability

  • Severability

  • Insolvency and bankruptcy


The preparation of contractual Terms of Trade, in particular those which apply to specialized areas of trading, requires a significant degree of legal expertise. Unless such expertise is used there are real risks that a supplier and purchaser, when entering into a contract for the supply of goods or services will innocently fall into one of many pitfalls in this area.

While it may not be practical or cost-effective to take legal advice before supplying each customer, it is advisable to take the advice of a solicitor or in-house legal adviser when the terms of ‘Standard Conditions of Sale’ are being drafted.

On Invoices and Statements

Show the payment terms boldly on the front. On invoices, also show the due date; e.g. ‘Payment Terms: 30 days from invoice date – payment required by 14th March 200X’.
On statements, repeat the terms and indicate debts past due dates.

Open New Accounts Properly

Businesses should treat this as the best chance to get payments properly arranged. The customer should expect to request time to pay and to be checked out. The business selling should not deliver until it is happy to allow credit. Allocating the Account Number should be the control point.

Recommended actions

  • Credit Application Form: Obtain correct name, payment address, person for payments, phone, fax numbers-mail details and acceptance of terms. (See form below)
  • Get credit references or not, according to policy. Decide maximum credit amount.
  • Allocate account number and set up correct account details.
  • Send ‘welcome letter’ to make contact with payments person, stating how and where payment should be made
  • Now the business is ready to sell to the customer on a credit basis, use special ledger category for 3 months, with telephone contact, to get the customer into good payment habits.

Invoice Effectively

An attention-grabbing invoice should be designed.
It should be brief and clear. Get rid of ‘clutter’ such as advertising and technical detail – the invoice is for accounts staff to use.
Invoice within 24 hours of a chargeable event.
DO INCLUDE: payment terms and due date, date, delivery date and method, description, price and total payable and especially the customer order number or payment authorisation – essentials!
Send the invoice to a named individual. Use FIRST CLASS post to beat customer closing deadlines. Use a courier for very large values.
Customers cannot be expected to pay against incorrect invoices. Invoices must be accurate.

Achieve Adequate Collection Coverage

As most businesses know, customers generally pay on time when chased, or when presented with alternatives, which may include legal action.
The sellers must find time to know which is which and deal with them accordingly.
Collection methods you might suggest include: VISIT – PHONE – LETTER – FAX. A Stop-List can also be effective for products in short supply.
Suggest visiting the top few major accounts to resolve problems and build relationships while collecting large cheques.
Suggest the business establishes telephone correspondence with major accounts in advance of due dates to ensure payments are in process, in time to solve problems before the deadline. It may be worth them phoning all other accounts, working down the list by size of debt, according to time available. LARGE DEBTS SHOULD BE PURSUED BEFORE TELEPHONING SMALL DEBTS.
Working in alphabetical or account number order is dangerous
Suggest written correspondence to any overdue accounts too small to telephone. Two standard letters are enough after an Overdue Message on the statement. A polite reminder letter should be enough for customers who ‘Pay when chased’.
For those who only ‘Pay when Threatened’, a second and Final Demand is needed.
The intervals between the letters depend on company cultures, but 14 days is plenty?

Set Targets and Priorities

  • Policy: – the company boss should make it clear to all relevant staff that THE COMPANY IS IN BUSINESS TO EARN CASH FROM CUSTOMERS and that A SALE IS NOT COMPLETE UNTIL IT IS PAID FOR. All staff has a part to play. For example, account queries are not low-level clerical matters. They are complaints from unhappy customers who feel let down. They justify non-payment and should be resolved in 7 days as prime customer service priorities.
  • Targets: The rate of cash inflow should be reliably in line with sales made. Work to a monthly Cash Target to achieve a specific Days Sales Outstanding (DSO) ratio which measures Total Debtors against Total Sales made. There should be constant pressure to reduce DSO, which is the average time customers take to pay. Secondary targets can be set to reduce certain kinds of debt; e.g. overdue 60 days above 500.
  • Resources: CASH COLLECTION IS HIGHLY COMPETITIVE – RESOURCES ARE NEEDED. A trained collector can only control about 600 accounts, making about 20 calls per day, amongst other work. Inadequate staffing rebounds in interest expense while waiting for slow payments plus some painful bad debts. It usually pays to separate collection from ledger work – the skills and time priorities are different.
  • Timetable: Every business should have a timetable for following up accounts too small to telephone economically, showing what to do and when, if the previous action has failed.

Use Third Parties Sooner not Later

Some customers ignore reminders and wait until they receive a significant threat; using a third party can have a stirring effect. The following approaches can be recommended to businesses chasing monies:

  • Collection Agents: They work on a ‘no collection – no fee’ basis and charge 10% – 25% of amounts collected, depending on complexity and volume. Good ones collect over 80% in the first month because of their third-party effect and full-time effort. A business can send undisputed debts below a certain value to an agency after a certain time. This releases its resources to collect large, current amounts from active accounts.
  • Non-Court Action: Going to court is not the only way of resolving a dispute. There are other options such as: Negotiation, Mediation, Conciliation or Arbitration.
  • Solicitors specializing in debt collection: They issue powerful letters in a short space of time, charging a pre-agreed fee.
  • Statutory Demands: Can be sent by the seller, collection agent or solicitors promising an application to court for the formal Winding-Up of the business if payment is not made within 21 days. Alternatively, the seller can obtain a court order for the debt.
  • Court Action: – Solicitors are essential for High Court actions but not county court. Fees are higher in the more effective High Court. Before suing, check that there is no known dispute, no other useful steps are possible and the customer has the means to settle.