Getting paid – the challenge for small business owners

Sometimes, the biggest challenge for a small business owner is getting paid. Effective communication with debtors is essential to minimise late payments and develop a business radar for detecting trouble. If you help them through their rough patch, you may end up with devoted customers for life.

Debtors usually fall into three categories:

• Customers who want to pay but, because of real financial problems, can’t do it on time;
• Customers who prefer to delay or juggle payments;
• Customers who will do whatever possible to avoid any payment.

Whatever collection efforts you make, it’s important to stay on top of the account until you’re paid by following these tips:

• Send bills promptly and re-bill monthly; don’t leave more than one phone message per day and never leave messages that threaten the debtor or contain statements that put the debtor in a bad light.
• Be direct, listen and don’t get personal. Keep your calls short and be specific. Always stay calm while maintaining a sense of urgency about getting paid;
• If the customer has genuine financial problems, ask what amount they can afford to pay and agree a new payment schedule in writing. Call a couple of days before the next scheduled payment is due to ensure that the customer plans to honour the agreement;
• Along with phone calls, send a series of letters that escalate in intensity. Save copies of all correspondence and keep notes of all telephone conversations. You may need these if you hand the matter over to a collections agency or take the customer to court;
• If an account remains unpaid for say, six months, offer a time-limited discount to resolve the matter. You can finalise this with a legal letter that terminates the debt;
• Turn the account over to a collection agency. Doing this is your last resort as a collection agency will usually only pay you 50% of what it recovers, however, half is better than nothing.

Do you have any tips for managing your business’s debt?

Adapted from an article by Rich Stim, Nolo