Collecting Past Due Payments

Promptness is key not only in sending out invoices but also infollowing up. If payment is due in 30 days, don't wait untilthe 60th day to call the customer. By the same token, however,don't be overeager and call on the 31st day. Being toodemanding can annoy customers, possibly costing you a valuableclient. Knowledge of industry norms plus your customers'payment cycles will guide you in striking a middle ground.

Constant communication trains customers to pay bills promptlyand leads to an efficient, professional relationship between youand them. Usually, a polite telephone call to ask about a latepayment will get the ball rolling, or at least tell you when youcan expect payment. If any problems exist that need to be resolvedbefore payment can be issued, your phone call will let you knowwhat they are so you can start clearing them up. It could besomething as simple as a missing packing slip or as major as adamaged shipment.

The first 15 to 20 seconds of the call are crucial. Project goodbody language over the phone. Be professional and firm, not wimpy.Use a pleasant voice that conveys authority, and respect the otherperson's dignity. Remember the old saying: You catch more flieswith 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 debtgoes unpaid, the more difficult it will be to collect and thegreater chance that it will remain unpaid forever. Most expertsrecommend making additional phone calls rather than sending aseries of past-due notices or collection letters. Letters areeasier to ignore, while phone calls tend to get better results.

If several phone calls fail to generate any response, a personalvisit may be in order. Try to set up an appointment ahead of time.If this isn't possible, leave a message stating what date andtime you will visit. Make sure to bring all the properdocumentation with you so you can prove exactly what is owed. Atthis point, you are unlikely to get full payment, so see if you canget 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 orwon't commit to a payment plan, you may be facing a bad debtsituation and need to take further action. There are two options:using the services of an attorney or a collection agency. Yourlawyer can advise you on what is best to do.

If you decide to go with a collection agency, ask friends orbusiness owners for referrals, or look in the Yellow Pages to findcollectors who handle your type of claim. To make sure the agenciesare reputable, contact the Better Business Bureau or the SecuritiesDivision of your Secretary of State's office. Since allcollection companies must be bonded with the state, this officeshould have them on file.

For more information, you can also contact the AmericanCollectors Association. Most reputable collection firms are membersof this international organization.

Many collection agencies take their fee as a cut of thecollected money, so there is no upfront cost to you. Shop around tofind an agency with a reasonable rate.

Also compare the cost of using a collection agency to the costof using your lawyer. You may be able to recover more of the moneyusing one option or the other, depending on the total amount of thedebt and the hourly rate or percentage the lawyer or agencycharges.

Excerpted from Start Your Own Business: The Only Start-UpBook You'll Ever Need, by Rieva Lesonsky and the Staff ofEntrepreneur Magazine, © 1998 Entrepreneur Press