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Time Bomb

Late-paying customers can put your business in jeopardy. Get organized--and get paid on time.
January 1, 2008
URL: http://www.entrepreneur.com/article/187658

Cash was flowing comfortably at Blackfin Technology, a software development and consulting firm in Boise, Idaho, until right around the start of the second quarter of 2007, when management began noticing a lag in accounts receivable. "It was really strange," says Jefferson Jewell, Blackfin's 37-year-old co-founder and president. "All of a sudden a bunch of customers started saying things like, 'I'm sorry, I didn't get that invoice. Could you resend it?'"

Turns out, it's not that strange. A "Discover Small Business Watch" survey, which in September found that economic confidence among small-business owners was at its lowest point in a year, also found that in businesses that extend credit, more than two-thirds had had customers delay payment in the previous three months. Late payments are a headache for any company, but for growing businesses, they can have a devastating domino effect: Unable to pay their own vendors, entrepreneurs wind up dipping into expensive credit cards to finance the lull. Cash flow grinds to a halt, and suddenly, just making payroll is a hurdle.

Luckily, Blackfin's management was more prepared to handle the crisis this time around, having learned a valuable lesson several years back when a major client stopped paying, forcing the partners to forgo three months' pay. "We learned from that point on to maintain a stronger cash position in the company," says Jewell. As soon as the company was flush again, the owners secured an operating line of credit--something they couldn't do while the payee was squeezing them and they really needed it. Perhaps most helpful, Jewell notes, were several administrative changes the company made, including sending payment reminders five days before bills were due and copying every invoice to a separate e-mail account to prove it arrived. Here are five more expert tips to help keep you paid in full:

C.J. Prince is a writer specializing in business and finance. Reach her at cj@cjprincemedia.com.