When you have a number of debtors, you need to be systematic. We recommend sorting your Age Analysis 90-day-plus in-arrears debtors from largest to smallest in terms of the size of the debt, and then focus on the top 20% of those debtors. This is based on the Pareto Principle, also called the 80-20 Rule. Put more time and effort into the top 20%, and less into the other 80%. This will result in higher returns for the time and effort invested.
Debtors have different characteristics, and you should handle them accordingly:
- Insolvent debtor – the debtor is insolvent. Obtain documentation from the debtor that confirms their inability to pay, and propose a write off of a portion of the debt. Make sure you have an Acknowledgement of Debt in place
- Disputing debtor – the debtor disputes the bill. Communicate with the debtor regarding the dispute. If you made an error, admit it, adjust your accounting, and they will change from being disgruntled to being a paying client very quickly. The key is to sort the problem out as soon as possible
- Intransigent debtor – the debtor simply refuses to pay. Give them a time frame to make arrangements, and if they keep on reneging on agreements, consider handing them over to a debt collection company such as Zylleyn.