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.

Paying Down Debt vs. Savings

The great Canadian conundrum – live for today or tomorrow? In an era when money is tight and many families have to make tough financial decisions, the question of priorities arises. How much should one save for the future? How should one juggle his current needs with future needs?

Certainly, young couples face this dilemma. By trying to squirrel away retirement money and manage a young household, many couples begin to choke. Experts advise that the best strategy is to erase debts before saving money. Start by paying down credit card bills. The result is a guaranteed after-tax return of 18%. No RRSP will offer that rate of return! Try, as well, to whittle down the mortgage. Once these debts are out of the way, you can re-direct the money into your RRSP.

In addition to the debt-first strategy, the next step, once you're ready to invest, is to prepare yourself for the inevitable. Since you can't predict the future, try to be in control of your options as best as possible.

Plan your investments with some foresight. Rather than look for the best deal today, try and decide what your future needs will be and work backwards. Invest in ways that will best fit your needs. Try to find the best mix of stocks and bonds for you and stick to that mix. Markets shift but your long term consistency should work to your benefit. Also, try and limit your risk. Some is necessary but everything in moderation. Consider a 60-40 mix of stocks and bonds. Once a year, take some money from the more profitable side and bolster the lagging side. This way, you will always buy low and sell high.

Remember the sage advice – be in control of your money; don't let your money control you!

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Canadian Consumers May Rock Economic Recovery

Recent statements by Bank of Canada governor, Mark Carney, reflect a spirit of optimism but also carry an undertone of warning.

Despite the recession, Canadians have amassed greater debt, due, in part, to the low interest rates currently dominating the market. These rates, currently at an historic low of 0.25%, were set by the Bank of Canada as emergency interest rates in order to resuscitate an ailing economy. The rates will rise eventually and Mr. Carney, as well as other leading economists, fear that many Canadians may be caught short. Mortgage rates have been extremely low for months while housing prices have rebounded. This has created a perfect setting for many Canadians to take on large debts. However, as the economy improves, interest rates may rise, at a quicker rate than they dropped. Mr. Carney is cautioning Canadians that purchasing a more affordable home today may be a wise choice.

One of the early warning signs of Canadians over-extending is the rise in personal bankruptcies. The third quarter of this year showed a 41 per cent jump compared to the same period in 2008. Similarly, the delinquency rate of mortgage payments has risen by 50 per cent in the last year.

The governor emphasized the vulnerability of the country's economy due to household defaults. As consumers are the key drivers to the nation's economic recovery, Mr. Carney, therefore, hazards Canadians about avoiding credit risks. Of course, a similar warning has been issued to lending institutions to properly monitor household credit.

Mr. Carney strongly believes the Canadian economy is definitely on the rebound and he expects Canada to outperform the other G7 countries. However, Canadian households will play a vital role in that economic recovery and the governor hopes that Canadians will act with economic responsibility for the collective good of the nation.
 
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Truths About Bankruptcy

For some individuals, there is no alternative. Financial debt can eventually lead to personal bankruptcy. Although the prospect of absolving one's self of debt by this method is a frightening thought, the truth is that there are many misconceptions surrounding the bankruptcy process that serve to make a difficult situation even worse.
 

Many people believe the misconception that filing for bankruptcy requires hiring an expensive lawyer. Truth be told, Canadian law states that lawyers cannot serve as bankruptcy trustees. In fact, small bankruptcies are filed by a trustee and do not appear before a judge. Moreover, if you're worried about protecting your privacy during this difficult time, fear not. Since 1997, personal bankruptcies are no longer advertised in the newspaper so your privacy in this delicate matter is assured.
 

Some have an image of the bankrupt individual sitting penniless in the street, hat in hand. That's a fine cartoon image but not reality. Declaring bankruptcy requires committing to a modest lifestyle for at least nine months. Different provinces have different rules regarding the amount of money you may retain as well as which possessions are protected.
 

A common untruth is that all debts are erased upon declaring bankruptcy. In fact, some debts are not. Child support and alimony are not changed. In many cases, student loans are also not erased.
 

Fearful that you will remain bankrupt for life? Fear not. Once your obligations have been fulfilled, you can be discharged from your bankruptcy. In a majority of cases, this occurs after nine months (but it can be extended if there is reasonable opposition from interested parties). Also, believe it or not, many people can re-establish their credit within one to two years after declaring bankruptcy.
 

No two cases are the same. But, before making a decision about declaring bankruptcy, do not merely visit the local rumour mill. Do the appropriate research carefully.

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