Making the sale is only half the battle. As most small businesses know, collecting money from clients after selling goods or services can sometimes feel overwhelming. It’s one of the trickiest issues for the small business owner. But, if you can’t collect unpaid bills from your customers, you can’t pay your own debts. According to Business Insider, a whopping 82 percent of small businesses fail due to experiencing cash flow problems. Because cash plays such an integral role in the health of your business, knowing how to expertly deal with slow-paying clients is critical.
Here are some steps you can take to improve your odds of getting paid.
Accept Online Payments
Gone are the days when companies only accepted cash or traditional checks for payment. In today’s tech-obsessed society, having numerous payment options for customers to select from is smart. Making the payment transaction as easy, effortless and transparent as possible will increase your chances of getting paid sooner. Consider accepting credit cards, online payments, e-checks or ACH payments.
Offer Incentives for Early Payment
The opportunity to save money can be a powerful incentive. To encourage your customers to whip out their wallets, think about providing discounts or special offers to those who pay early or set up recurring ACH payments.
Send a Reminder Letter
A reminder letter is a polite, harmless way to prompt customers with overdue invoices. Use a standard form letter. Since form letters aren’t overtly personal, customers likely won’t react negatively. End the reminder letter by requesting the customer contact you in order to talk about payment alternatives.
Make a Phone Call
If the reminder letter doesn’t do the trick, you should proceed to contact the customer over the phone. A phone call will be harder for the slow-paying client to ignore than an informal reminder letter. Hearing your concerned voice may be all that customers need to divulge the reason for their lack of payment.
Reassess the Situation
When a reminder letter and a phone call don’t spur a customer to pay a debt, reassessing the situation is in order. At this point, try not to become angry. Certainly, don’t threaten the client. Calmly, figure out what the underlying issue is and how you can remedy it. Determine how important retaining this customer is to your small business.
Do you believe they will recover from their current insolvency and become a paying client again? How much of the money owed can you reasonably expect to recover? At this juncture in the collection process, you might wish to offer the customer an installment payment plan. If collecting some money now is more important than getting the full amount later, you may want to accept a partial payment. For instance, you might tell a customer you’ll agree to take $5,000 as full payment for the $7,500 the client owes.
Have Your Attorney Write a Demand Letter
A demand letter is a certified document written by an attorney that threatens the customer with legal action if the debt isn’t paid. Oftentimes, a demand letter will result in payment when a reminder letter and phone call don’t work.
Hire a Collection Agency
If getting involved in a lengthy court case isn’t a desirable option, you might want to hire a collection agency. Usually, collection agencies will take a percentage of the cash they collect from delinquent customers.
If you find yourself with one, or more, overdue customer accounts, avoid unwanted anxiety by following the aforementioned tips. However, don’t ever end up spending more in lawyer’s fees or collection agency expenses than you’re owed in a quest to make a delinquent client pay up. And, continue to proactively build safeguards in your accounting policies to help prevent late payments in the future.
Martinez & Shanken, PLLC writes for CountingWorks, an accounting news and advice website. Reach the firm at [email protected]
About Martinez & Shanken, PLLC
Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services. Partners Deborah Martinez and Earl Shanken work to ensure your business accounting is done with integrity and to your satisfaction.
