Saturday 27 October 2012

Getting Customers to Pay

Most of our business involves on the spot payment but for those occasions when you need to chase customers for payment, here is some advice from an unusual source.

The British Tax Office has a long list of late payers and they found the traditional approach of letters threatening interest charges, late payment fees and legal action were just not working.

They adopted a new approach, pointing out the connection between taxes and the services that benefit all citizens, and the fact that 9 out of 10 taxpayers actually pay on time. Sounds basic enough but the improvement in recovering overdue debts was very impressive. A clearance rate of only 57% in one portfolio in 2008, translated to 86% in a similar portfolio in 2009 after the new letters were introduced.

The dramatic improvement was put down to a psychological phenomenon that people’s behaviour is largely shaped by what those around them are doing. Conforming to group behaviour is a strong incentive. Might be worth a try next time a customer defaults.