Small businesses rarely have the
financial resources to endure the energy and costs it takes to collect
from slow paying customers. In fact, it’s one of the primary reasons
for business failures, especially in this current economic climate.
While compassionate credit terms are given with the hope to enhance
sales, in the end they usually just enhance bad debt write-offs. Vital
to your success is the continual need to preach to yourself the message
that good customers are ones that pay on time.
The time, energy and costs of working the over 90 day accounts are
enormous, not to mention it’s taking you away from your normal course of
business. Unless you’re a bank, you are not in the business of lending
money. Credit terms must be set and enforced and never ignored or
brushed off. If you do, the consequences can be devastating, both for
your business and personal life.
Having a solid financial policy is great but what’s even more
important is having a solid financial policy that everyone believes in
and follows. To see if you are on the path, here are some good
questions to ask.
Do you have a credit application signed by each customer on file?
Is your credit application well written covering interest rates, late
fees, and in the event of collections, attorney costs and collection
Do you go over your payment terms upfront with your customer and get their commitment?
Does your business accept credit cards or offers cash discounts?
Do you conduct, to whatever degree, a credit check on new customers?
Do you evaluate current customers to ensure continued success?
The value of having a well written credit application that is signed
by your customer is foundational to your success. It sets the tone of
your business transaction that this is not being done by the seat of
your pants. And the costs of having an attorney review the wording on
your credit application upfront is highly recommended and worth every
Make sure the person collecting has the right temperament to make
collection calls. Don’t wait too long or shy away from asking for your
money. Remember, your client probably isn’t shy about asking for your
product to be there on time. So, if you perform on a timely basis,
expect their payment to be timely too. If you see a pattern of broken
promises and lies, then this account should be flagged and worked with
Now, please hear me loud and clear. If your customer continues to
delay payment and you feel threatened of not being able to collect your
money, employ a professional collection agency sooner than later. The
biggest mistake is thinking you’ll get paid next week. Next week turns
into next month and so forth. Go with your gut feelings as time is your
enemy. The cost of waiting is not worth it.
If you do assign an account to a collection agency, the cost of
having to pay the collection fee is minor compared to having a bad debt
write-off down the road. The longer you wait to assign this customer to
a professional collection agency, the less probability of collecting
your money. That’s not just my opinion, it’s the truth.
Every customer that is having difficulty in paying has unique
circumstances, so use your knowledge of the facts and history
surrounding this old debt to determine the best time to take action.
But do take action. Employing a collection agency is a good thing to
do. It puts the work of collecting into the hands of the professionals
and allows you to spend your time conducting prudent business
Remember, the better you are upfront in determining the credit
worthiness of any customer, and having a credit application signed, must
be where your time and energy are focused. This also allows you to get
to know your customer and establish a relationship for future business.
On the other hand, reacting to a bad situation after the fact is
costly in the long run and maybe even fatal to your business. A good
motto to follow is to measure twice, hammer once!