Nearly every small business owner has faced the problem of a customer
or client not paying for services rendered or products delivered. It
is always stressful to collect from these non-paying customers so it
makes sense to try and eliminate the problem before it occurs.
It may be unfortunate but true that since most businesses are not
cash-based, you will be forced to provide credit to be competitive.
The most obvious safeguard, is to check a customer's credit BEFORE
extending any credit. Don't simply take a list of "credit references"
since a customer will not knowingly give a bad reference (but check
the references anyway!). You need an independent check and that's what
credit bureaus are for. For minimal cost, you can check a customers'
credit rating from an independent
- Equifax (404) 885 8000
- CSC Credit Services (713) 878 4840
- Trans Union Credit Info (312) 258 1717
If your customer is a corporation, use Dun & Bradstreet services for
checking past payment history. (1 800 234 3867). Don't stop here,
however - also check with their bank and 2 or 3 of their customers.
If any of these checks is the least bit negative and you have any
doubt of being paid, request payment prior to shipment or performance
of services. Don't be shy about this. If you are questioned, simply
indicate that your check of their credit was not satisfactory.
If, even after checking, you end up with an overdue invoice, try these
steps (in order) to attempt to collect: Obviously the effort you spend
should be related to the amount overdue!
- Call and note that an invoice is overdue (by x days) and request
payment by a certain date. Be sure you are talking to someone who can
make a commitment. If your invoice noted that interest is charged for
overdue payments be sure and remind the customer of this fact. Ask if
another copy of the invoice is needed. Offer to work with the customer
if they are having cash flow problems. For example, suggest partial
payments over some period of time. Be polite!
- FAX the original invoice and request payment.
- Send a registered letter with a copy of the original invoice and
again, request payment.
- If the amount is large enough to warrant it, have your attorney
write a letter on your behalf.
- As an absolute last resort consider hiring a collection agency.
Personally, I don't like using collection agencies. They are expensive
and leave a bad taste with everyone. When selecting an agency be sure
to ask for and check references; ensure they are members of the
International Association of Commercial Collectors (IACC); and ensure
you understand their rate structure and policies. They will take a
bigger chunk than you might think!
Since we really want to prevent having to do any of this, lets consider
a few things to help you get paid on time:
- Make certain your invoice form is clearly laid out and easy to
understand. Clearly display your payment terms (NET 30, etc) and
include a short statement to the effect that late payment will be
assessed a finance charge. No one ever seems to pay these charges
but the statement can't hurt and might get you paid more quickly by some.
- Make certain your invoices are correct and include any information
required by the vendor. (If they request two copies, send them two copies!)
- Make sure the invoice goes to the correct address! Frequently shipping
and invoicing addresses are different. Also, if you don't use packing
slips, include a copy of the invoice with the product shipment.
- Call to confirm the invoice has been received.
- If a vendor pays consistently late or you become concerned about
their ability to pay, immediately suspend their credit terms and
request advance payment for your product or services. Don't be concerned
about losing a customer - you don't need them if they don't or won't pay.
