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Top 5 Debt Collection Techniques to Reduce Bad Debts

24 June, 2022
4min read
Terri Miller, Director of Business Operations
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What you'll learn

  • Why are debt collection techniques critical?
  • How to ensure that you apply the right debt collection technique?
  • What are the right debt collection techniques for each unique situation?
  • Accounts receivable automation and how it helps with collections
What debt collection techniques or strategies can you use to reduce bad debts?
How does RadiusOne AR Automation Suite increase debt collection?
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When you hear the word debt, your mind automatically goes to banks and other financial institutions whose business is around lending and collections. However, most of us don’t realize that most B2B (business-to-business) organizations run their business on credit, which means debt and collection of dues are critical for their business.

Debt collection is the process of collecting payments from your customers for the goods delivered or services rendered. In most cases, there is a prior understanding of the terms of payment that follow a sequence starting from the order and ends with the collection of payment.

However, there are many factors that could hinder the process of collections and you need to have some effective debt collection techniques to help you. This could range from preventive measures to strategies that help you once the debt has gone bad and the payment is not forthcoming.

What debt collection techniques or strategies can you use to reduce bad debts?

  1. Prevent rather than regret

  2. The saying ‘prevention is better than cure’, has never been more apt than in the collections scenario. One of the most effective collection strategies is to have a robust credit check and onboarding process in place. Ensuring that you do a thorough credit assessment and onboarding while offering goods or services on credit is one of the best strategies to adopt. You can have a process in place where customers can apply for credit terms within your accounts receivables software that is easy to use and enables the collection of comprehensive information.

  3. Prioritize and plan

  4. Another collection strategy is to prioritize the customers you need to start calling even before you start the calls. Obviously, you need to know the aging of the accounts and the amounts due to make effective collection calls. Many businesses fail to recognize this factor and blindly make calls to all customers, even those who pay regularly. Calling customers who have paid, irritates them and causes unnecessary friction.

    Use accounts receivable automation software like the ones that HighRadius offers, to ensure that your collection analysts can prioritize and plan their customer calls for maximum efficiency.

  5. Offer more options

  6. Most companies do not realize that customers often have the ability to pay but delay payments because the process of making the payment is too complicated. A simple way to mitigate this is by offering more options for payment to customers. In fact, the AR automation software that we offer at HighRadius will enable you to embed a payment link in the invoice itself. This way the customer will be able to take action immediately. Apart from embedding links in the invoice, you should also consider offering more options.

  7. Invoice correctly and on time

  8. Perhaps the most important collection strategy and sadly, most ignored is the importance of sending accurate invoices on time. Your simplest and most effective collection strategy should be to ensure that your invoices are detail-rich and sent out on time. By timely we mean that the invoices should reach the customers with enough leeway to allow them to plan and arrange the funds to pay your invoices.

  9. Bridge communication gaps

  10. This strategy ties in with the first one we talked about where you are better off preventing bad debt rather than chasing them with prudent credit policies. In addition to that, also ensure that your sales team, which is responsible for getting customers to buy your products or services knows the process for credit terms. This way the sales team will do an initial screening even before proceeding with a credit-based sale. At the same time, ensure that the communication lines between the sales and collection teams are always open to enable better cooperation and improved collections.

Check out these 10+ collections email templates used by collections professionals across 700+ leading order to cash teams.

How does RadiusOne AR Automation Suite increase debt collection?

At HighRadius, we have been helping companies ranging from the mid-sized market to the enterprise side, optimize their accounts receivable processes. Our software helps you optimize the whole process starting from credit onboarding, eInvoicing, applying cash, to dispute handling. In fact, our software ticks all the boxes when it comes to implementing an effective collection strategy.


What is the most effective collection technique?

The best collection technique would be to empower your team at every stage of the process. This would mean setting processes and mechanisms in place, leveraging technology to ensure continuity, removing silos, and making the process of collections seamless.

How to improve collection skills?

One of the best ways to improve collection skills is to encourage cross-team collaboration, which should be focused mainly on the sales and collection teams. Make each team aware of the pain points the other team goes through so that they work on preventing bad debts before they occur. Improve communication skills to enable negotiation and resolution.

What is effective collection management?

Effective collection management starts with the credit onboarding of the customer and ensures that the necessary steps are taken at every stage of the process. This means efficient and accurate invoicing, enabling payment options, and dispute management.

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