Early detection and follow-up are
keys to small business bill collecting
and taxes are two certainties of life. You can add a third if you're
a small business owner: deadbeats who won't pay what they owe you.
No wonder the Small
Business Administration says that credit reporting and collections
will create more jobs between 1994 and 2005 than any other small
business-dominated industry in the nation.
For most small business owners, however, credit
collection isn't an opportunity. It's just one more thing they have
to do to keep profitable.
Here are some tips on how to collect:
it easy to pay
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 financial service company's
Web site for small companies.
Such a policy outlines credit terms and explains
when and how a company will collect on overdue accounts. A company
may want to start with an overdue notice, then a friendly phone
call and, ultimately, may want to hire a collection agency. Just
having a policy will give your company the discipline -- and the
timetable -- to properly follow up on overdue invoices and ensure
that no delinquent accounts fall through the cracks. "This will
give you a path to follow," Bredin says.
books and invoices clear
In addition to having a policy regarding overdue invoices, having
a good bookkeeping system in place also can streamline the process,
she says. The system can be regular books or a software program,
as long as it provides some method for tracking payments.
"Sometimes small business owners are their own
worst enemy," Bredin says. "Bad debt is their fault because their
invoices are really unclear or they don't send them to the right
person or they forget to follow up."
Having a bookkeeping system in place will eliminate
those snags and get you paid sooner.
Another way to ensure prompt payment is to follow
your account's invoicing instructions to the letter.
Big corporations in particular may have precise
methods for paying their suppliers. They may want the invoice sent
to one department, with a copy to the person that actually requested
the service. Or maybe they want a special ID number put in the right
hand corner. Perhaps they prefer faxed invoices to e-mailed ones.
Whatever their quirky requests, adhere to them and odds are that
your check will be in the mail.
Find out when your big accounts pay. Is it always on the 15th
or the 30th of the month? Following up right after when the company
pays bills can be a great way to decrease bad debt, says Linda A.
Swerling, principal of Level II Solutions, a small business consultancy
based in Brookline, Mass.
Credit applications and verification of the
application information can also weed out problem customers before
they turn into deadbeats, says David Sher, co-author of How To
Collect Debts and Still Keep Your Customers. A credit application
will give you basic contact information (the customer's address,
phone number and contact person) in case the deal goes sour.
When it comes to checking on tardy payments,
act sooner rather than later, advises Brian Reese, a partner with
Cash Flow Enhancement Group Inc., a collections subcontractor based
"Most companies don't call until a bill is 15
or even 30 days overdue," Reese says. "It's much better to call
up right after the sale."
In fact, Reese and other collection experts
advise a quick follow-up call right after the purchase. These follow-up
calls can help eliminate one common cause of delayed bill paying
-- lack of satisfaction on the customer's part. The follow-up call
can eliminate any problems and excuses when it comes to bill-paying.
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."
Another way to avoid bill collection problems
is to ask for payment upfront. If the customer is unwilling to do
that, then at least get a deposit or a partial payment before the
service or product is rendered.
a little kindness
"Kill 'em with kindness" is Brian Reese's motto when dealing
with deadbeats. Yelling or threats seldom get bills paid. He advises
striking up a relationship with the customer's bill payer from the
beginning so you'll have a friendly ear to bend when you need help
That's the tack that Snowden McFall, CEO of
Brightwork Advertising and Training in Nashua, N.H., takes. She
gets to know every one of her customers' bookkeepers. She chats
with them about their children and lets them know "that I value
them," McFall says.
Such handholding decreases the chances of misunderstandings.
It also usually means the bookkeeper that McFall's friendly with
will pay her invoice over other bills.
Being persistent also pays. When a customer
fails to pay Multicultural Marketing Resources Inc., a public relations
and marketing firm in New York City, its president, Lisa Skriloff,
follows the money trail. She follows up continually with the delinquent
account's bookkeeper. When the bookkeeper says the bill will be
paid on the 29th, Skriloff will follow up on that day to see if
the check went out and, if not, she'll ask, "When I should check
If kindness and persistence doesn't pay, Alice
Bredin, the small business expert, recommends finding someone higher
up in the organization to negotiate with.
"The way to do it is to talk to the person you've
been dealing with and say, 'I don't want to keep bothering you.
Is there someone else I could follow up with so we can take this
off your plate?' "
When moving up the corporate ladder, it's important
to placate the original contact person. Alienate him or her and
you could jinx your payment, Bredin says.
Finally, prioritize debt collection, not just
by how overdue an invoice is, but how large an amount is overdue.
Many small companies make the mistake of printing out overdue accounts
list and then attacking it alphabetically, says Reese. If you have
limited resources -- and what small business doesn't have limited
resources -- then devote your energies to those who owe you the
most and who stand the best chance of paying you.
the final moves
If an account 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 client
doesn't have the money to pay your company. If that's the case,
your small business must decide whether the account is worth saving,
either because it's so lucrative or it is otherwise worth the extra
effort to collect what's owed. If it is, then setting up installment
payments can help get your company paid.
Small companies also can grease the payment
wheels by having their legal counsel send a letter to the overdue
account. 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.
Small claims court is another last resort step
to take. Keep in mind that most of these courts have a cap on damages
and that small claims court can be time-consuming and expensive,
but if you run out of options and still haven't been paid, it's
worth a shot.
Of similar severity is turning the account over
to a collection agency. There's a finality to turning an account
over to collections because "you won't be working with them again,"
says Lisa Baer of Baer
Design Group Inc., an Evanston, Ill., graphic arts firm.
In addition, the amount collected will be less than what you're
owed since the collection agency will take its cut and usually the
amount paid is negotiated down in return for an actual payment.
In the end, the best way to avoid being a full-time
bill collector is to set up early warning procedures and systems
so that slightly delinquent accounts don't turn into full-fledged
Above all, one method to keeping customers
happy and paying is to become indispensable. If the businesses can't
survive without your product or service, you can bet they'll pay
you on time every time.
McCune is a contributing editor based in Montana
-- Updated: July 29, 2002