Small business owners often are experts in their given field, but not in the area of collections. According to the U.S. Small Business Administration, over 50 percent of small businesses do not survive the first year, some of those failing due to uncollected receivables. Oftentimes, small businesses just getting started are so eager to bring on a new client they fail to discuss payment terms prior to beginning work. However, if you plan ahead you will spend less time fixing problems later. Clients want to know what is expected of them.
Plan ahead and get it in writing: Setting payment guidelines upfront is good business practice. "One of the key strategies in successfully collecting receivables begins long before you send out an invoice," commented collections expert, David Stone, president of Nevada Association Services, an assessment collections firm servicing over a 1,000 homeowners associations throughout the state. "When you sign on a new client or customer, talk with other vendors they do business with and, if needed, do a credit check. Prior to beginning work, explain when they will receive invoices, and ask them in what manner it is best for them to receive an invoice," Stone continued. "Sit down with your new customer and go over your billing procedures, ask them if they have any questions, and then have them sign that part of the contract."
Do your part and bill on time: Determine the same date every month to distribute your invoices, and stick with it. "One private-practitioner attorney never did his billing on time, yet wanted to know what he could do to increase his percentage of on-time receivables," said Stone. "In this case, the answer was in the question. Why should clients have a sense of urgency to pay a business or individual who gives the impression that there's no urge to get paid? As recommended, this attorney hired a part-time bookkeeper and after 60 days of consistent billing, his 90-day-plus receivables dropped by almost 70 percent and many of his clients were soon paying on time."
Offer electronic debit: Thanks to the advances of technology, even small businesses can easily set-up an electronic debit system. Many businesses are making it standard operating procedure to ask for a credit card upfront. This system works well for businesses that provide a regularly scheduled service or delivery of goods, for example, a lawn-care company or a bottled water delivery service.
Provide gentle reminders: Consider providing a kind reminder note, and at that time notifying your client that if the payment is not received by a set date, then interest will be charged on the balance. Of course, you will want to make sure that information is documented in your original contract. If time continues to pass without any payment, gradually increase late fees and assertiveness.
Use multiple forms of communication: In this day and age, we have several forms of communication for which to choose including regular mail, e-mail, or fax. A few of my clients request that a substantial amount of back-up be included with their monthly invoice. Therefore, it is easiest to mail or hand-deliver a package to them. That way, I have confirmation it was received. Others prefer to handle paperwork online, and have requested receiving their monthly invoices via e-mail. Ask your client which form of communication they prefer.
Reduce your risk whenever possible: According to small business owner Shelley Fallon of Fallon Multimedia, a creative development and design firm at Lake Tahoe, "If your client typically incurs large amounts of buy-outs, which in my case could be printing and photography, give them the option of paying that vendor directly. That way, they save money by paying directly and not having to pay a mark-up, and you reduce your risk by only billing for services and goods provided by your company."
Identify key players: Oftentimes with large companies and government entities, an invoice has to make the rounds for approval before landing back on the desk of the accounts payable person. It has been helpful in my business to identify the actual accounts payable person and to keep an updated database of telephone numbers and e-mail addresses for those individuals. That way, if you need to move forward into the "reminder" stage, you can go directly to the source. Oftentimes an invoice will get misplaced or buried on someone's desk that may be on vacation, delaying your payment for weeks of even months!
Consider hiring an expert: When all else fails, it may be in your best interest to hire a collections firm. If you uncomfortable and/or inexperienced regarding collections, or simply do no have the time to pursue outstanding invoices, there is a good chance that a collections firm may get results for you. Granted they will take a percentage of funds recovered as a service fee, however, collection is their expertise and they may be able to retrieve funds that you may have never received.
Litigation-a last resort: Litigation should be the last resort when collecting on past-due invoices. Weigh court costs, attorney fees and your time against the amount of the debt, and then determine if it is worth it. Sometimes simply notifying your client that your next step is to take legal action will motivate them to pay. If you decide to follow-through with a lawsuit, don't do it solely for the principle. Stone comments, "We've all heard people say, 'It's the principle of the thing!' Well, unfortunately, principle does not pay the bills. However, if it is a large amount and it makes sense to go to court, then by all means, do so." If you go to court, be prepared by bringing along several forms of documentation, including contracts, reminder notices, and e-mails.
Be consistent and persistent: Remember, it is best to structure timely billing practices and enforce them. The longer a debt goes unpaid, the more difficult it becomes to collect. Begin with gentle reminders sooner rather than later and be consistent in sending them. More importantly, implement planning ahead strategies, so you do not get to the reminder stage. Worst case scenario, write off an unpaid invoice as a bad debt as it may benefit you on your tax return.
Bobbi Coulter is president of Coulter & Associates, a full-service marketing and public relations firm in Reno. Contact her at (775) 771.7320 or bjcoulter@charter.net.
