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A Four-Step Method for Effective Debt Collection

If your Aged Trial Balance looks overwhelming and you're not sure where to start, this method could help you collect unpaid invoices quickly and efficiently. Here’s a simple, four-step approach to get your collections back on track:

Step One: A Fresh Perspective
Take a fresh look at your Aged Trial Balance, leaving aside any previous attempts. Approach it with a “new broom” mindset and start from scratch.

Step Two: Conduct a Quick “YES/NO” Review
Review each account and mark those you don’t want to follow up immediately. The reason doesn't matter; just make a note of any accounts you’ll skip for now.

Step Three: Categorize Accounts
Divide all accounts into one of these four groups:

1. The Untouchables
   Special cases you’ll avoid for now, such as those facing genuine hardship, important clients, or accounts already with a debt collector.

2. For Special Consideration
   Accounts with large outstanding balances or other unique circumstances.

3. Just Due for Payment
   Accounts with only recent, current invoices or minor older balances. This category often brings in the “fast money.”

4. Long Overdue for Payment
   Accounts with overdue balances, even if amounts are relatively small.

Step Four: Handle Each Category Separately

• The Untouchables: Don’t pursue these accounts. Set a reminder to review them in one month.

• For Special Consideration: Address these accounts only after dealing with other categories, as they may require more time to resolve.

• Just Due for Payment: Send a polite reminder email. Here’s a sample:
  Dear [Client's Name],
  Invoice for: [Company Name]
  Invoice No: [Invoice Number]
  Amount: [Amount Due]
  According to our records, the above amount appears to be outstanding. If payment has already been made, thank you. Otherwise, please arrange settlement at your earliest convenience.
  Kind regards,
  [Your Name]

• Long Overdue for Payment: Send a more direct email like this:
  Dear [Client's Name],
  Re: Outstanding Fee Balance – $[Amount]
  A recent audit showed the above balance is still outstanding. Please arrange payment or contact me if you wish to discuss this matter.
  Kind regards,
  [Your Name]

Additional Tips:

1. Use a name unfamiliar to debtors when possible for better response rates.

2. Focus efforts where you can expect faster results.

3. This non-confrontational approach assumes innocence and keeps the tone professional.

4. Blame “records” or “audits” for payment follow-ups to reduce confrontation.

By following this straightforward method, you’ll likely see a positive impact on your collections. Like all of our strategies, this approach is based on the Three Principles of Effective Debt Collection.