SMALL BUSINESS DEBT COLLECTION

    You do the work or provide the goods exactly as you were supposed to.  Then you send out your invoice and wait patiently to be paid.  And wait.  And wait.  Now what?  You started your business to make a difference, to do what you love, to express your vision, not to become the bank of choice for your customers.   Aggressive collection techniques may alienate a good customer, but not collecting could mean the end of your business. 

    You’re not alone.  Recent OPEN Small Business Network Polls from American Express show accounts receivables is the top cash flow concern of small business owners.   But there are ways to collect what you’re owed without turning into a full time bill collector.  Here are some tips.

Plan ahead...
    Every small business should have a collection policy in place before the company begins selling its products or services, says Alice Bredin, a New York City based small business author and resident expert at American Express Small Business Exchange. The policy should outline credit terms and explain when and how a company will collect on overdue accounts.  Even if you’re a one-person operation, having a policy will give you a timetable to properly follow up on overdue invoices and ensure that no delinquent accounts fall through the cracks.

An ounce of prevention...
    Whenever credit is extended to a customer, make sure you have a contract in writing, and signed by the customer, before doing any work or providing any product.  The contract doesn’t have to be complicated, but it’s an essential step in protecting yourself if collection becomes a problem.  Stay away from the “Do-it-Yourself” contract kits sold by some office supply stores, they may not comply with all state laws and probably contain clauses you don’t need or want. 

    The contract should outline what work is to be done, who is responsible for payment and when payment is to be made.  You should provide for interest on uncollected balances and a provision for attorney’s fees and court costs  if a collection action  becomes necessary.  Once the customer signs it, make a copy for them and keep the original for yourself.  A signed contract is a powerful tool if you have to use the courts to collect. 

Don’t delay...
    When it comes to checking on late payments, act sooner rather than later.  Delaying will only let problems fester and will actually decrease the odds of getting paid, says Sher, who offers a variety of debt collection services through his Birmingham, Ala.based company, AmSher Receivables Management. "Studies show that the chances of getting paid drop about 12 percent each month that a bill goes unpaid," he says. "That's 36 percent after three months."

Be nice (at first)...
    The first step is to explore why the bill is late. It could be your client simply forgot. Provide a gentle reminder immediately following the due date.  If that doesn’t work, gradually increase assertiveness.  While your first letter is positive and helpful, the third collection letter may show concern for their situation.

When all else fails...
    If a customer declines to pay in spite of repeated prodding, it's time to find out what's really wrong. Usually there are two reasons for overdue bills, either the customer is dissatisfied with the product or service or is having financial problems.  Since customer dissatisfaction should have been uncovered in a quick sales follow up call, chances are the customer either doesn't have the money to pay you or is less than responsible when it comes to paying his or her bills. That’s probably the time to bring in your attorney.

    Reluctant payers are often motivated by a letter from legal counsel to call and make payment arrangements.  Sometimes the subtle threat of having a letter from an attorney is enough to get a delinquent account back on the straight and narrow payment path.

    If the letter doesn’t work, the legal system may be your last resort.  For debts under $2000, small claims court is a good option and a court order can be a powerful tool in collecting an overdue debt.  Although additional court costs are involved in obtaining and enforcing a judgment, a judgment will enable a constable to collect the debt and will effect the debtor’s credit rating until it’s paid in full.  A judgment by the court can also be used to attach any real estate owned by the debtor. If the debt is greater than $2000, the case must be brought in District or Superior Court, but the same advantages apply.

Remember...
    Spending too much time and resources on account collection can be draining on your operation.  Law offices that work with debt collection often do so for a percentage of what is collected.  The older a debt becomes, the less likely it is that it will ever be collected.  Once it appears that collecting on an invoice is going to be a problem, turning the debt over to a professional will save you time and aggravation, as well as increasing your bottom line.