Stay on top of your Receivables – even the small ones
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There are many small businesses that are all cash businesses. But if you offer commercial or retail accounts, you’re also in the collections business. Almost half of all small businesses offer some form of credit to their customers.
Currently, there are many problems collecting money in a depressed economy. What small business operator does not feel that “They just don’t pay until you threaten to cut them off.
Customers have all sorts of reasons that they are late on their payments. Often they blame the economy. Sometimes they blame their own customers’ delinquency in making payments to them. There are as many excuses as there are slow paying customers.
Everyone is goin to have slow paying customers – it is just part of lending money. But regarless of how small the debt is you must employ the same rules to your collection efforst and stay on top of your receivables.
How do you collect money if you are a small business owner? Here’s how:
DO THE JOB YOURSELF
Only the owner (whose money is at stake) combines the intensity and the diplomacy necessary to persuade customers to pay without alienating them. Only the owner realizes the consequences of uncollected revenue: loss of income and wasted effort. Only he feels the pain of unpaid accounts when he can’t pay the bills.
MAKE COLLECTION A REGULAR PART OF THE DAY
Look over your accounts; see who’s overdue. When the date passes, call. Be reasonable but firm. The money is due; the balance must be paid. “We need the money to pay our bills,” you will say. The person on the other end knows this, but it might strike a nerve.
Make sure you talk to the right person. If you can’t get to the person who pays the bills, his or her assistant will do. Finally, make a note of your phone call and keep those notes in a calendaring system. A typical note might read: “Called, spoke to Sally on 8/12, she promised to have a check in the mail for $55 on 8/15. The follow-up on 8/16 to make sure that the payment is received.
FOLLOW UP
Stay on top of your collection phone calls. In a short period of time (1-2 weeks), make the call again. Each time be a little firmer. “We can’t continue to extend your credit if you can’t fulfill your obligations,” you might say—something just short of a threat. It puts the company on notice. Wait another week to follow up again, and continue every week until the bill is paid.
Always be polite but firm, raising your level of insistence each time. “You said you would pay the bill, but we haven’t received payment,” you’ll say. “Why not?” You can say this whether or not they agreed to pay, just to put the ball in their court and force the person to come up with an explanation.
If you must, leave voicemail messages. Do so in the same polite-but-firm tone. At this point, the idea is to make such a nuisance of yourself (while still being civil) that they throw up their hands and give you what you want—payment in full.
Occasionally, if your customer truly does not have the ability to make a full payment a compromise is appropriate. Make a deal. You will accept 60% now in order to clear up what they owe you. Maybe your customer can pay you in another way like bartering such as in supplies.
NEVER GIVE UP
There will come a time when an account is cut off when there is still money outstanding. If you turn the account over to a collections agency, because you will pay 30% of the debt in collection fees and they probably have no more power to make people pay than you do.
Instead, ratchet up your insistence. Be less polite. There are harassment laws that tell what you can and cannot do to collect money, but these are deadbeats. Change you calling patterns. Let them know that not-so-subtle pressure will demonstrate that the issue is not going to go away.
Threatening legal action is generally ineffective because the wheels of justice move so slowly. If the individual is savvy, he will ignore legal machinations until the last minute, then pay the bill. He has gained a year’s credit with no penalty, and might have worn you out in the process.
Make your collection efforts count. You can collect 100% of your money without alienating your customers.
