It’s a simple fact of owning a small business: Sooner or later, you’re going to have someone who just doesn’t want to pay you. The reason is irrelevant. What matters is that you recognize the reality of delinquent accounts, and also the reality that there is much you can do to collect these overdue payments in-house.
That’s not to say that you’ll never need to enlist the services of a collections agency; one day, that might become necessary. However, it is clearly a last resort, and before you get to it, you might try the following:
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- Determine whether you have a credit policy, and what it is. Are you willing to issue a credit to those clients who simply cannot pay you immediately? Or for that matter, to offer payment installation plans? If so, that can be one way to minimize delinquents and make sure your payments roll in, slowly but surely. It is vitally important that you hammer out a specific, written credit policy, though, and that you enforce it consistently.
- Take action before payment becomes delinquent. Before a payment becomes overdue, make sure to send a reminder or two to the client in question. Simply sending an invoice and then forgetting about it, until it’s either paid or becomes officially overdue, is a bad move.
- Assign risk categories to your delinquent accounts. A customer with a history of delinquencies may be a bigger worry to you than a new customer with no payment history at all. If you are going to take drastic action and enlist a collections specialist, or start assigning late payment fees, you may want to do it with a tiered, risk-weighted system.
- Keep records. Maintain documentation of any communication you make with the client, including late payment reminders, as well as any responses that the client might send.
- Have a collections policy in place. How late, or at what risk level, do you send an overdue payment notice? A second overdue payment notice? A final letter? At what point do you take a write-off or contact a collection agency? Make sure you have a set policy in place.
- Send invoices that are clear and consistent. Ensure that they are clearly labeled as invoices. Always include payment terms and penalties. Provide an itemized breakdown of the total cost. All of these factors can ensure that invoices actually get paid, not dismissed or ignored.
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