No one likes getting bills, it doesn't matter if they are delivered via text message, email or post. But in our experience, businesses dislike bad debt even more.

Debt that goes bad becomes unrecoverable. This happens when your customers may be unable to settle their accounts for various reasons e.g. poor cash flow or liquidation. Debt can also become bad in a scenario where it will cost the creditor more to collect the debt than the debt is worth.

Bad debt becomes an expense on a business's income statement and, if left uncontrolled, can have a significant impact on net profit.

One tool that businesses can use to enhance their collections process is statements.

"But I already send a bill out to my customers!" I hear you cry. Of course, you invoice your customers monthly, weekly or bi-weekly for services rendered. An invoice however performs a different function to a statement.

The difference between an Invoice and a Statement

We believe that to effectively manage your collections, you need to use both invoices and statements as part of your toolkit. 

Some clarity. We're not necessarily suggesting you should immediately double the communications you send to customers each month. There are a variety of ways to include statements as part of your collections process - we'll give you a few ideas later in this post.

But for now - here are 3 reasons why using statements can help reduce bad debt.

Reason 1: Visibility around Ageing

From a customer's perspective: 

Being able to see the effect of your debt over time provides a good incentive to clear your balance - or at a minimum, work towards clearing it.

Breaking down outstanding debt into time periods such as 30, 60 and 90 days shows the customer how the amount he owes is growing over time, as interest is applied.

From the business's perspective:
Being able to track the ageing of your customer accounts allows easy identification of long outstanding debts and those which may need to be handed over to debt collectors. This ensures your collections activities are directed towards the most relevant accounts, in a timely manner.

You will also be able to estimate the percentage of your customer debt that may become unrecoverable.

Reason 2. Encourages Settlement of Full Balance

For customers, being able to see the full amount they owe in black and white will remind them of all invoices that have not yet been settled. This will hopefully encourage them to work towards settlement.

Knowledge and understanding of the outstanding balance also opens up dialogue with a debtor, and allows both parties to work together to recover any outstanding debt.

Reason 3. Stops 'Invoice Skipping'

It's easy for a customer to have 'not received' or 'not seen' an individual invoice. A statement clearly displays the full or recent (depending on your strategy) history of all activity on the customer’s account, leaving no room for interpretation or 'not receiving'.

BONUS: Reduce Incoming Queries

How many queries coming into your customer service teams are related to account balances, payments and invoices? If you're anything like some businesses we've worked with, the answer is "significantly more than I'd like".

In our experience, sending out regular statements significantly reduces the number of incoming queries relating to invoices and balances. It gives your customers the information they are looking for, right at their fingertips. This frees up your agents’ time to focus on other activities such as customer retention and technical queries.

How to include Statements as part of your Collections Process

As promised earlier in the post, we've put together a few ideas of how to include statements as part of your collections process:

• Email a monthly statement along with your regular invoice to your customers
• Send a statement out every 3 months to highlight recent transaction history
• Include an aging report within your regular invoice (as per the above example)
• Provide statement information within your customer self service portal
  
  

Statements are just one of many tools that you can employ to enhance your collections process, and reduce bad debt.

To find out how SOLIDitech uses automation to build fully integrated and automated collections services, visit our website or download our 'Guide to Automation'.