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Trade credit helps increase sales and build long-term relationships with customers. The client receives the goods earlier and pays after an agreed term. For the seller, however, it means financing the business partner’s operations from its own capital for a few or a few dozen days.
The problem starts when the due date passes and the money does not arrive.
We know what it is like when you do not want to force the issue straight away. The client is important, the relationship has lasted for years, and the delay may result from an administrative problem, the absence of the person who approves invoices, or a temporary liquidity shortage.
So the phone call is put off until later. The payment reminder is not sent, because nobody wants to sound too firm. A few days later more invoices appear, and the total amount owed grows.
Effective trade credit collections do not have to destroy the relationship. They should be a predictable process that starts even before the payment due date, with neutral communication, and gradually moves on to more formal actions.
Trade credit helps increase sales and build long-term relationships with customers. The problem starts when the due date passes and the money does not arrive. Effective collections do not have to destroy the relationship.
Why does the lack of a systematic receivables recovery process put the company at risk?
A late payment is not just an accounting problem. It directly affects the ability to place further orders, settle payables to suppliers and maintain a safe level of cash.
Payment gridlock can spread between successive companies in the supply chain. A business that has not been paid by its customer may itself lack the funds to pay its own invoices on time.
The company reacts too late
In many organisations the first payment reminder is sent only a few or a dozen or so days after the due date. Before that, nobody checked whether:
- the invoice reached the right person,
- the document was approved,
- the account number is correct,
- the client has raised objections,
- the payment has been scheduled,
- the due date does not clash with the client’s internal payment run.
The later contact begins, the harder it is to tell an ordinary oversight from a real liquidity problem.
Further orders increase the risk
A regular client may keep placing orders even though earlier invoices remain unpaid. The salesperson focuses on selling, the warehouse handles shipping, and the finance team tries to recover earlier receivables.
If the information is not connected, the company increases its exposure to a business partner that has already used up its trade credit limit.
As a result, one customer can have at the same time:
- several overdue invoices,
- further invoices with a future due date,
- deliveries that have not yet been invoiced,
- new orders being prepared,
- individually extended payment terms.
Contact depends on an employee’s memory
A manual process is usually not consistent. One person sends a message the day after the due date, another waits a week, and yet another contacts the client only after receiving an instruction from the owner.
This way of working leads to three problems:
- clients do not know what reaction to expect,
- part of the receivables is not handled on time,
- the owner cannot be sure which actions have been taken.
A lack of consistency can also weaken the company’s position. The client quickly notices that missing the due date triggers no reaction.
The client relationship becomes an excuse for inaction
A good relationship should not mean giving up enforcing the agreed terms. The company delivered the goods or performed the service, so a payment reminder is part of professional cooperation.
A sudden jump from weeks of silence to a formal demand for payment can be far more damaging to the relationship. The client received no neutral signal beforehand, and the first message is immediately escalatory.
How to run trade credit collections without losing the client?
The safest solution is a gradual process in which the tone and form of communication depend on the number of days of delay, the value of the receivable and the history of the relationship.
1. Start communicating before the payment due date
The first message does not have to be collections. It can be a neutral reminder that the due date falls in a few days.
Such contact makes it possible to:
- confirm receipt of the invoice,
- catch formal errors,
- check whether the document is in the approval process,
- learn the expected transfer date,
- avoid a delay caused by an oversight.
The message should be short, factual and free of any accusatory tone.
An example of the sense of such a message:
“We would like to remind you that the invoice payment due date falls in three days. Please let us know if the document needs to be completed or sent again.”
2. Adjust the response to the history of the specific business partner
Not every client should follow an identical path.
It is worth taking into account:
- the average number of days of delay,
- regularity so far,
- the value of open receivables,
- the number of unpaid invoices,
- the amount of the credit limit used,
- the payment trend,
- the importance of the client to the company,
- the cause of earlier delays.
A client who always pays two days late needs a different approach from a customer whose delays grow from month to month.
Payment history should influence not only how reminders are sent, but also the decision whether to fulfil the next order and the size of the trade credit limit.
3. Build a gradual escalation path
The process can be divided into successive stages.
Before the due date
- a neutral reminder,
- confirmation that the document was received,
- an option to report a problem quickly.
The first days after the due date
- information that the payment has not been recorded,
- a request to state the planned transfer date,
- resending the invoice and payment details.
The next stage of delay
- a phone call,
- agreeing a specific repayment date,
- confirming the arrangements in writing,
- limiting further trade credit.
Advanced delay
- a formal demand for payment,
- charging the interest and costs that are due,
- suspending further deliveries,
- handing the case over for further handling.
If a business owner has performed their obligation and the business partner has not paid on time, the creditor in a commercial transaction may be entitled to statutory interest for late payment without having to send a prior demand. The regulations also provide for a fixed compensation for the costs of recovering receivables: the equivalent of 40, 70 or 100 euros, depending on the value of the obligation. The application of these entitlements should be assessed each time in relation to the contract and the specific transaction.
4. Separate the account manager from the financial process
A salesperson often does not want to chase a client, fearing damage to the relationship or the loss of the next order. On the other hand, a finance employee may not know the context of the relationship.
That is why it is worth clearly separating the roles:
- the finance team is responsible for timeliness and the process,
- the account manager passes on information about the relationship,
- the owner approves exceptions,
- the system keeps track of due dates and next actions.
Thanks to this, a payment reminder is not a salesperson’s personal decision. It follows from a uniform policy that applies to all clients.
How did we solve this problem at Administy?
Running agencies, we ourselves had difficulty reminding clients about payments on a regular basis.
Chasing manually was uncomfortable and unsystematic for us. We did not want to damage relationships, so we sometimes waited before getting in touch. The process also depended on whether a particular person remembered to check the invoice and send the message.
In practice this meant that:
- some reminders went out too late,
- communication differed depending on the employee,
- it was hard to check what had already been sent,
- clients with a similar delay were handled differently,
- the inflow forecast was based on the invoice due date, not on the client’s actual behaviour.
That is why at Administy we created automatic reminder scenarios.
The process can start with a neutral message before the due date and then move through successive stages of soft collections. The user sets the conditions, timing and type of communication, and the system keeps track of carrying out the next actions.
Administy lets you, among other things:
- monitor invoices and their payment statuses,
- trigger reminders before the due date,
- send messages after the due date has passed,
- tailor the path to the type of client,
- check the communication history,
- see whether a message has been read,
- escalate the case to the next stage,
- analyse a business partner’s payment habits,
- include the expected delay in the cash flow forecast.
The system can handle communication from a reminder before the due date, through soft collections, all the way to handing the information over for further handling. The paths can be tailored to the client type and the business relationship.
The most important thing is that the client does not immediately receive an aggressive demand. The first messages can be supportive and organisational in nature. Only a lack of response or a further delay changes the tone.
This approach makes it possible to balance two goals:
- protecting the commercial relationship,
- protecting the company’s financial liquidity.
Automation does not take away the option of an individual decision. The owner or account manager can stop the scenario, change its stage or agree an individual repayment schedule with the client. What the system eliminates are situations in which a receivable is not handled only because nobody remembered the next contact.
Consistency protects the relationship better than a sudden, harsh reaction
Good trade credit collections do not start with a threat. They start with clear rules, timely communication and consistent reactions to delays.
The client should know that the company monitors payments, but also has a chance to explain the problem quickly. Thanks to gradual escalation, you can recover receivables without turning every delay into a conflict.
Administy helps you automatically monitor due dates, run tailored reminder scenarios and include business partners’ real payment behaviour in the cash flow forecast.
Contact the Administy team and see how to recover receivables consistently, without manually watching every invoice and without needlessly damaging relationships with clients.
