It is not the most pleasant part of being an entrepreneur, but failing to handle payments expeditiously will almost certainly endanger your business’s cash flow and long-term viability.
1. Prevent late payments
Establish a standard policy for payments and make your customers aware of them before starting work. Some businesses may require all or a portion of the payment upfront, while others allow terms, such as payment within 30 days after receipt of invoice. Your invoices should also clearly state any surcharges for late payments.
2. Be careful with credit
If you provide goods or services on credit, develop qualification standards that are specific, yet fair (for example, a good credit history from a credit bureau or good bank references). Put your credit policy in writing and make sure all employees understand it. You should also have the policy posted in your store or available as a handout.
3. Take the right attitude
Your collections policy will do no good unless you enforce it. Do not shy away from a potential confrontation, but avoid provoking it as well. If you have met your obligation and a customer has not, you are entirely in the right. On the other hand, don’t assume the customer is entirely wrong.
4. Find out why
Contact the delinquent account holder and ask politely for an explanation. It may well be that the invoice has been lost or is awaiting approval. Based on your experience with the customer, you may feel confident enough to allow extra time or instalment payments. Make sure you both clearly understand any compromise. Be flexible, but firm; and don’t hesitate to follow up.
5. Take stronger action
If your collection attempts fail, it may be time to turn to an attorney or collections firm. Terms for these services vary; they may require a fee and/or a percentage of the invoice amount, or a retainer. You may decide the amount of the overdue account does not justify the cost and effort to collect. If so, write it off as a bad debt and move on.
6. Don’t do it alone
Establish contact with small business experts who will be able to help you establish a payment and credit policy that makes sense for your business, as well as strategies for collecting on delinquent accounts.