Collecting Past Due Payments
How to make clients pay up
Promptness is key not only in sending out invoices but also in following up. If payment is due in 30 days, don't wait until the 60th day to call the customer. By the same token, however, don't be overeager and call on the 31st day. Being too demanding can annoy customers, possibly costing you a valuable client. Knowledge of industry norms plus your customers' payment cycles will guide you in striking a middle ground.
Constant communication trains customers to pay bills promptly and leads to an efficient, professional relationship between you and them. Usually, a polite telephone call to ask about a late payment will get the ball rolling, or at least tell you when you can expect payment. If any problems exist that need to be resolved before payment can be issued, your phone call will let you know what they are so you can start clearing them up. It could be something as simple as a missing packing slip or as major as a damaged shipment.
The first 15 to 20 seconds of the call are crucial. Project good body language over the phone. Be professional and firm, not wimpy. Use a pleasant voice that conveys authority, and respect the other person's dignity. Remember the old saying: You catch more flies with honey than with vinegar.
What if payment still is not made after an initial phone call? Don't let things slide. Statistics show that the longer a debt goes unpaid, the more difficult it will be to collect and the greater chance that it will remain unpaid forever. Most experts recommend making additional phone calls rather than sending a series of past-due notices or collection letters. Letters are easier to ignore, while phone calls tend to get better results.
If several phone calls fail to generate any response, a personal visit may be in order. Try to set up an appointment ahead of time. If this isn't possible, leave a message stating what date and time you will visit. Make sure to bring all the proper documentation with you so you can prove exactly what is owed. At this point, you are unlikely to get full payment, so see if you can get the customer to commit to a payment plan. Make sure, however, that you put it in writing.
If the customer refuses to meet with you to discuss the issue or won't commit to a payment plan, you may be facing a bad debt situation and need to take further action. There are two options: using the services of an attorney or a collection agency. Your lawyer can advise you on what is best to do.
If you decide to go with a collection agency, ask friends or business owners for referrals, or look in the Yellow Pages to find collectors who handle your type of claim. To make sure the agencies are reputable, contact the Better Business Bureau or the Securities Division of your Secretary of State's office. Since all collection companies must be bonded with the state, this office should have them on file.
For more information, you can also contact the American Collectors Association. Most reputable collection firms are members of this international organization.
Many collection agencies take their fee as a cut of the collected money, so there is no upfront cost to you. Shop around to find an agency with a reasonable rate.
Also compare the cost of using a collection agency to the cost of using your lawyer. You may be able to recover more of the money using one option or the other, depending on the total amount of the debt and the hourly rate or percentage the lawyer or agency charges.
Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press