From the August 2000 issue of Startups

Are any of your accounts receivable more than 60 days past due? How about 90 days? (The only answer worse than "yes" is "I don't know." Find out.) Unlike fine wines, debts do not age well; the longer a bill goes unpaid, the less likely it will be paid. What are you doing about slow-pays and no-pays? If you have the time and would rather not bear the cost (15 to 50 percent) of a collection agency or attorney, there are several steps you can take to get your money.

You've sent several invoices and reminders. Your next move is equally simple: ask for payment. Call or visit the customer, calmly review the situation, and ask for your money. Odds are, you'll get an explanation (or excuse) but nevertheless come away with a check or credible assurances that your bill will be paid. At the very least, insist on a firm commitment that the payment (or partial payment) will be made on a given day and exactly how it will be made (hand-delivered cash, a check via a messenger service or whatever the case may be).

In the unlikely event that the customer says no payment will be made, ask why. If you can't resolve the issue, leave or hang up the phone to avoid charges of harassment. Call again a day or two later. Should you get the same response, put the matter in the hands of an attorney or collection agency. (An alternative is to file suit in small-claims court, but that's time-consuming, and, even when you win a judgment, your struggle to actually get your money may require more effort than it's worth.)

When a phone call or visit is not possible, the next best thing is to write a strongly worded letter requesting payment. For guidance and sample letters, see Credit and Collection Letters Ready to Go! (NTC Contemporary Publishing, $14.95, 800-323-4900) by Ed Halloran.

For customers claiming a cash-flow shortage, offer to charge the amount due to their credit cards. This allows them to pay the balance in installments-and it solves your problem, albeit at a cost of 3 to 5 percent. In fact, allowing all customers to pay with credit cards can go a long way in reducing accounts receivable problems and eliminating default risks.

Is your payment problem with a large company? Instead of dealing with accounts payable, call the buyer who regularly places orders with you. Explain that if payment is not made you will have to withhold goods or services. (The accounts payable clerk probably won't care, but the purchasing agent will.)

Other points to keep in mind:

  • The best way to encourage prompt payment is to insist on getting the money while the customer still needs your services.
  • Be alert to signs of problems such as slower payments, failure to return calls and bounced checks.
  • Once a customer becomes a problem, discontinue credit.
  • Consumers are protected by law from threatening or harassing debtcollection practices. Do not make threats (other than that of a lawsuit, for example, or halting services).
  • Carefully record all contact made to secure payment. Note the date and time, the person you contacted and what was said; this record may prove useful in the event the matter goes to court.
  • At some point, you must concede some debts are simply uncollectible (if someone declared bankruptcy, for example). Bad debts are usually tax-deductible, however.

Paul DeCeglie (MrWritePDC@aol.com) is a former staff reporter for Journal of Commerce and American Banker.