What to Do When a Customer Won't Pay?
by Solovic, Former Guest Blogger
- Created: February 23, 2010, 11:37 am
During tough economic times, many businesses experience difficulty in collecting outstanding invoices from customers on time. Aging account receivables cause critical cash flow issues and can easily put your business at risk. To protect your business you need to establish good credit practices. After all, the survival of your business depends on getting paid.
Before you agree to extend credit to a customer, establish the credit terms. Determine when the payment will be due and what, if any, late fees or penalties will be assessed. You may want to consider a discount for early payment or require a certain percentage of the total amount to be paid in advance.
Make sure you document every aspect of the transaction. And this may sound simplistic, but do;t forget to get your custome-s signature on all pertinent paperwork such as sales agreements, contracts, and delivery receipts. Unfortunately, -ve seen companies lose significant amounts of money because they trusted a customer and failed to get it in writing.
Once yo've invoiced your customer, do't stop there. Send a payment reminder prior to the due date. Ted Shalek, CFO of SmartOnline*, a company specializing in software applications to help small and medium-sized businesses operate and run all aspects of their business says,'Do't send them a reminder immediately after you send your invoice. About seven days prior to the due date is good practice'
Shalek also advises to request a read receipt if you send the payment reminder via email. 'In the email, let your customer know that you had an agreement, you provided the service or product on a timely basis and it is the custome's obligation to provide you with payment' he adds.
If payment isn't received in a timely fashion, then you can follow up by sending a certified letter with a return receipt requested to your customer. Shalek says certified mail makes a point and lets your customer know you mean business.
A phone call to a past-due customer or a face-to-face meeting may be necessary. In either case, it is important to remain professional. You're dealing with somebody you've provided a service to and you've made an effort to create that customer who you hope will pay you and who you hope will do business with you in the future, Shalek explains. We are dealing with difficult economic times and those customers have in many cases difficulty in making payments and if you understand the issues with the customer and you are able to deal with those issues you hopefully will do business again in the future.
Finally, if you aren't successful in collecting outstanding invoices, you may have to resort to more drastic measures. A collection agency or a law firm specializing in collections are options, but make sure the firm has a good reputation. Remember, they will be representing your business and unprofessional tactics can impact your reputation. Check with a professional advisor such as your lawyer or CPA or the Better Business Bureau before choosing a firm. Also familiarize yourself with the Fair Debt Collection Practices Act*.
*Hyperlink directs reader to a non-government website.
Additional Resources from Business.gov
Edited due to formating issues.
About the AuthorSusan Wilson Solovic is an award-winning entrepreneur and journalist, author of three best-selling books, multi-media personality and a small business contributor to ABC News and other media outlets, public speaker and attorney. In addition to sitting on several executive boards of small business organizations, Solovic is the CEO and co-founder of ItsYourBiz.com – a company she led from a concept to a multi-million dollar enterprise.(formerly SBTV.com) She is also a featured blogger on numerous sites including Huffington Post, AllBusiness.com, Constant Contact, WSJ.com and Fast Company. Her forthcoming book, It’s Your Biz: The Complete Guide to Becoming Your Own Boss, is scheduled for release in October 2011.
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