Collections: How to Collect From Slow Paying Customers

Ask any successful small business owner what keeps them afloat and they’ll tell you that cash is king. Having cash reserves to tap into can help a company float through the “lean” times. Even with those reserves, there is still the need to collect from customers who owe outstanding debts. Yes, times are tough all over but slow paying customers can be a major drag on a small business. How can your company effectively collect from slow paying customers? Here are some helpful hints to keep in mind when collections are an issue.

·         Establish a Payment Policy for All: The hope is that every customer will pay their bills promptly but there is no way of knowing if that is going to go according to plan. One way to hedge your bets is to establish a payment policy that applies to all business. This could mean asking for a deposit up front before any goods or services transfer hands. If a potential customer has a problem with paying a deposit it could be a red flag towards collecting future payments. This payment policy should also be in writing and cover the final payment schedule whether that is net 10 days or 30 days upon completion. You can have flexibility depending on the customer but your payment policy will work best when everyone agrees to the terms.

·         Add A Late Payment Fee: A late payment charge is not something that a customer wants to be hit with but it could prove to be the incentive they need to get their payments in on time. A smart practice is to make sure the customer is well aware of any late payment penalties. Even though you put it in writing, it’s helpful if you or your representatives can go over those terms verbally. A small business can’t afford to alienate customers with hidden fees.

·         Develop A Thorough Collections Plan: Your small business collection plan should follow automatic procedures that remain consistent. First, make sure you are re-billing customers who have failed to pay right away. These past due bills can be worded with a “gentle reminder” to bring the bill up to date. You don’t have to apologize for sending out these reminders but you can frame them to put the responsibility on the customer by mentioning things like they might have forgotten the due date. For a single missed payment, it’s always best to remain cordial.

·         Repayment Plans: If a customer has a bill that is 60 days or more past due you might want to work with them to set up a payment arrangement. You could help by stopping the late fees and arrange to have payments directly withdrawn from their designated bank accounts.

·         Professional Collections: When all else fails, you can turn the customer’s account over to a professional collection agency. They will pursue the matter until it is amicably resolved. This will free up your own accounting department to concentrate on the more reliable customers.

In extreme cases, you might find that a bankruptcy is imminent. The clues could include no responses to your requests for payment. If you think this is happening then you should work with your small business lawyer to file a proof of claim. Once a bankruptcy has been filed, it might be too late to collect.

Customer Red Flags to Watch Out for

If you are in business, you know that you have to constantly be on alert on all fronts. You try as hard as you can to plan and operate your business with clear guidelines. Sometimes, though, all the planning cannot prevent the unexpected. Many business leaders will tell you that the problems from outside are the biggest challenge.

In order for you to operate, you count on suppliers for goods and services. Your cash flow is dependant on timely payment by your customers. Any disruption from your suppliers or customers can be harmful to your operations. Continued disruption can become fatal. However, by being vigilant and spotting the early warning signs of potential problems, you can avoid trouble before it happens.

Keep abreast of a customer's payments. If the payments start becoming delinquent on a regular basis, they may be in trouble. Don't wait, though, until they stop paying. Open up a dialogue early to help you collect payments while their doors are still open.

Another warning sign is commonly known as nit-picking. You owe a customer a small credit and they refuse to pay their large bill until the credit is received. This stalling tactic should indicate to you that all is not well, as they could obviously just deduct the credit and send the balance. Perhaps, the customer suddenly begins sending you the balance in several payments, without consulting with you. Your early warning signal should be blaring loudly.

Have you noticed that there has been a large turnover of employees at your customer or supplier? Is this a sign that the passengers are jumping ship before it sinks? When you called to speak to someone over there, the usual perky, friendly reception was replaced by a rather laconic, curt reply or a disinterested, half-hearted response. Be on the alert and assess the situation carefully. You need to protect your interests.

Keeping one step ahead of the storm can be your best insurance plan.

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