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Small business owner needs payment policy in place to avoid collections
Published on Monday, Jul 14, 2008
Unfortunately, the answer is not always. Most customers are conscientious about making timely payments, but others might require some extra effort. Though frustrating and time-consuming, collecting from delinquent accounts is not something you should put off or simply hope will work itself out. Every dollar of revenue counts toward keeping your business afloat.
Obviously, prevention is the best way to avoid having to deal with collections in the first place. Establish a standard payment policy and make your customers aware of it before doing business. Your invoices should clearly state when the total is due and the fee for late payments.
Once the deadlines pass, you need to take prompt action.
Get the facts. Don't assume the customer is entirely wrong. Contact him or her by phone or mail and ask politely for an explanation. It might well be that the invoice has been lost or is awaiting approval. A customer with cash-flow problems might also request extra time. How you proceed depends on the situation and your experience with the account. You might feel confident enough to allow extra time or arrange installment payments. Make sure the customer clearly understands any compromise. Be flexible, but firm. And follow up.
Take stronger action. If your initial collection attempts fail, it might be time to turn to an attorney or collections firm. Terms for these services vary from a flat fee or percentage of the invoice to a retainer.
Or let it go. You might 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.
Don't make the same mistake twice. Should customers with poor payment histories approach you about working for them or restoring credit, don't immediately refuse unless you are absolutely certain they remain bad risks. Ask them to explain how their situation has changed and decide whether it makes sense to restore the relationship. As a precaution, insist on stricter terms, such as advance payment or cash up front.
If you would like more information about this or other business-related subjects, contact Akron SCORE via the Internet at http://akronscore.org or by calling 330-379-3163. Services are free and confidential. SCORE is a resource partner of the U.S. Small Business Administration.
Get the full article here.
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