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By Jan Norman |
| NASE Member Russell Siegel, an attorney in Fullerton, Calif., says his biggest client insists on being billed only quarterly. Then the client takes another 60 days or more to pay. That habit makes it tough for Siegel, who specializes in workers’ compensation cases, to pay his own bills. But he’s afraid that vigorous efforts to collect will just drive the client away.
Virtually every small-business owner can relate to Siegel’s plight. “In small business, relationships are very important,” says David Schaefer, author of Surefire Strategies for Growing Your Home-based Business (Upstart Publishing, 1997). “You don’t want to destroy the relationship, but you don’t want to be taken advantage of either. The hard part is that when you work alone, you’re both the good cop, building relationships with the customer, and the bad cop, enforcing the rules.” Juggling those roles is critical to cash flow and ultimately to the success of your business. Collections experts say small-business owners must be friendly and fair, yet firm in the vital collections side of their business. Establish a collections procedure, stick to it and be persistent when collecting overdue accounts. Clients who pay slowly or not at all are like sugar in the gas tank of America’s economic locomotive. Here’s how you can keep deadbeats from derailing your business. Establish Collection Procedures Too late may be sooner than you think. Almost 74 percent of receivables that are three months delinquent are paid. But after six months, payment drops to 56 percent. After a year, only 29 percent of delinquencies are collected, according to the Commercial Law League of America. You can avoid some collection problems by checking a new customer’s creditworthiness before you begin the business relationship. “Start with a letter of agreement going in,” Schaefer advises. “Don’t start work before they sign, even if they say they have a tight deadline.” If a customer isn’t going to pay the total bill up front, have him complete a credit application, in which you state your payment terms, says Kevin Sutherland, owner of a Southern California collections service specializing in manufacturers and distributors. Repeat the payment terms on the invoice. If full payment is due within 30 days of the invoice, put a specific due date on the invoice so no one misunderstands when the payment clock starts ticking. To encourage promptness, offer a discount for early payments and charge interest on overdue bills. Typically, a supplier offers a 2-percent to 3-percent discount for payment within 10 days of the invoice date. “But discounts must be earned,” says Jim Nicholson of Ohio-based National Revenue Corp., one of the nation’s largest collection agencies. “Do not accept 98 percent payment on the 11th day.” Charging interest on past-due accounts is another billing policy that you should spell out on your credit applications and invoices, Sutherland says. The maximum interest allowed varies by state, so make sure your terms comply with local laws. Send the invoice as soon as the order ships, Sutherland recommends. And call as soon as the product or service is delivered to make sure the client is satisfied. Customers sometimes withhold payment because they’re unhappy with the products or services delivered. The call gives you a chance to resolve the problem quickly. It’s also an opportunity to ask if the customer needs additional products and services and to remind him of the payment terms, Sutherland says. Start your collection efforts the day a payment is overdue, recommends Marrianne Gillispie. She and her husband own County Heating and Air Conditioning in Orange, Calif. “I had a major client that owed us $31,000 when it lost its line of credit,” she says. “I always say that I have to receive something. If you can’t pay the whole amount, let’s work out installments.” Once a customer proves to be a late payer, don’t ship more product or provide more services until some payment is made, says Chuck Davis, president of Amdraft/CTI, an architectural supplies firm in Huntington Beach, Calif. Send future orders COD or request the account be paid before making further deliveries. Keep a Professional Attitude “I’m never rude with anyone. But I am firm,” Gillispie says. “If you come across as hard-nosed, you won’t get the money. So I play ‘up’ music on the way to work on the days I have to make collection calls. I want to come across as helping them, as working together to solve this problem.” If the first approach doesn’t work, she tries another. One note that she attaches to invoices reads “Good morning. Your account just had a birthday—it’s 30 days old.” Another offers several choices with a box beside each that the customer checks off: Schaefer says an effective tactic for him is to call the accounting department of a slow-paying client and explain: “I’m sure you understand. I’m the smallest of small companies. I can’t be put in the position of being a bank because I’m so small. I feel I have upheld our end of our letter of agreement. Can we resolve this immediately?” |
4 Surefire Strategies for Growing Your Home-based Business |
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