The biggest challenge that a small business owner faces is getting paid of the debts owed by customers when it becomes due. The good news is, with little preparation, you can minimize late payments and develop the business radar that lets you know when an account is headed for collections, writes Atty. Rich Stim. By communicating effectively and working with financially troubled clients as they make their way through a rough patch, you may end up with devoted customers for life, according to Stim.
Late-paying customers usually fall into three categories. The first category includes customers who want to pay but, because of real financial problems, they can’t do it on time. The second category includes customers who prefer to delay or juggle payments; while the third category includes customers who will do everything to avoid any payment.
Stim believes that with the first two categories, there is a chance to collect. You may be able to persuade the debtors to make partial or full payment, or make an arrangement to restructure the debt. But for the last category, you need to recognize this type of debtor and be quick in taking serious actions – such as turning the account over to a collection agency.
In “Running a Side Business: How to Create a Second Income,” by Richard Stim and Lisa Guerin (Nolo), they listed down some more tips:
- Don’t harass people who owe you money but let them know that you are serious in getting paid. Don’t leave more than one phone message per day and never leave messages that threaten the debtor or put him in a bad light. Keep your calls simple, short and straight to the point. Always stay calm, but maintain a sense of urgency about getting paid.
- Be creative. When the customer can’t pay because he is financially problematic, ask how much he can realistically pay and when he can make payment. Allow for an extension but have the customer agree in writing to a new payment schedule. Remind the debtor in a respectful manner the next scheduled payment and confirm if he will make the payment as agreed.
- Whenever possible, try to offer a good discount to encourage payment. When a large amount is involved and payment would have to be made over a longer period of time, offer an attractive discount to encourage shorter payment period.
