Sometimes one of the biggest challenges for a small business is getting paid. While it may be impossible to avoid the occasional late payment or even the customer who doesn’t pay at all, here are 7 small business bill collection strategies that that can help to improve your chances of being paid promptly and in full.
Have clear payment terms. They don’t have to be the same for every customer, but each customer’s payment terms need to be communicated to him clearly and in writing before you do business. Among other things, decide when payment will be due, what forms of payment you will accept (cash, check, credit card, debit card, etc.), when and if you will offer credit or make installment sales, and what the penalties will be for late payments.
Take preventive measures to avoid bill collection problems. Before extending credit to a customer on a large sale, check his credit history. Even if he has a blemish or two on his record, you may want to do business with him, but you also may want to adjust payments terms or even require payment in cash up front. You also may want to limit how much credit your small business extends to a new customer until he has established a history of on-time payments with you.
Have a well organized and disciplined collections strategy. Send invoices and bills out on time and have a set policy for following up when payments are late. Also, follow the four P’s in your small business collection efforts: be proactive rather than taking a wait and see approach to a missed payment; be polite when asking for payment; be professional in all your collection efforts and never step over the line into behavior that could be considered harassment; and be persistent if payment isn’t made after your first or second call.
Track your collection efforts. Keep records of all your business’s collections efforts, including copies of emails and letters and records of phone calls. Once payment is late by a predetermined length of time (such as 30 days), send letters requesting payment by registered mail so that you have a record that they have been received.
Be flexible. Rather than being rigid in sticking to your bill collection policies, sometimes you may be better off working with an individual customer who is having difficulty paying. For example, by offering extended payment terms to a customer having a short-term cash flow problem, you may increase the odds that you will eventually be paid.
Offer incentives. Instead of focusing solely on penalizing bad behavior, consider strategies for rewarding good behavior, such as offering incentives for on-time payments. For example, you could offer a discount for payments made when service is provided or a credit on a customer’s next purchase when payment on an initial purchase is made on time.
Plan ahead for unpaid bills. Think about how you want to handle unpaid bills. While there may not be a one-size-fits-all answer to this question, it can be helpful to know when to quit trying to collect on a bill that simply isn’t going to be paid. Also, decide whether you want to pursue other options for unpaid bills, such as suing, taking the customer to small claims court or turning the bill over to a collection agency.
Sources:
Barbara Brabec, www.businessknowhow.com, Small Business Collection Strategies That Work
Michelle Dunn, www.entrepreneur.com, Business finance: debt collection, billing tips
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