How to pursue debt without losing customers’ loyalty

How can a business pursue its debts without losing its customers’ loyalty or relationship even with intense competition?

Before answering the question, we need to unravel why it is imperative to pursue and recover any outstanding debt from customers before supplying them with additional orders of credit.

Pursuing an outstanding debt is simply collecting the already earned revenue from customers, which is comprised of the payment for cost incurred in the production process plus profit earned from the sale of the product.

Anytime a business fails or compromises on collecting outstanding debt, it literally loses the capital used in the production of the product and the profit that would be earned from selling the product.

There are several ways a business can use to pursue an outstanding debt without losing its customers in the recovery process.

First, establish a comprehensive credit policy that touches on the entire credit management continuum, starting from customer prospecting to debt recovery.

Most businesses that do provide trade credit usually have a policy that acts as a guideline that spells out the processing, approval of credit applications that arise from customers as well as recovery of outstanding debt.

Any credit decision that is arrived at, be it on a fresh credit application, or recovery of any outstanding debts is subjected to the guidelines — although due to intense competition many firms operate off cuff the credit policy.

Recovery process

In the credit policy, formulate the recovery process as a mechanised system that is not subjective but automatic.

For instance, a firm may have a mechanised recovery process which spells out that “in the event that the debt is not recovered within the specified time, say 60 days, the debt will automatically be escalated to a debt collection agency to recover.”

Next, this should be communicated to potential customers through the credit policy to make them aware of the recovery process, especially involvement of the debt collection agency.

Most customers often have the feeling of mistrust or dejection by their supplies whenever their debts are handed over to, or they are confronted by, debt collection agencies without prior information.

Other customers even perceive the use of a debt collection agency as a punishment for their adverse trade relationship.

Subsequently, such customers would either resolve to repay the debts completely and cut links with the trade supplier or they would switch their suppliers immediately to evade repaying their debt.