Slow Pay or No Pay? Tips on How to Get Businesses to Pay-Up
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In today’s turbulent times with money being tight in this new slow economy, many customers who normally pay their bills on time are now delaying payments or choosing not to pay at all. Is this happening to you? If so, here are a few tips to recover your money and to prevent this from happening in the first place.
Let’s start with preventing the problem. First, get a contract or letter of agreement, have it signed, dated for the services to be rendered. Forget a verbal agreement or a handshake. With the turnover in staff at all levels the person you make the deal with could be long gone by the time you need to get paid. SPELL OUT in clear English the dates that payments are to be made and the amounts. This holds up quite well if you need to get a lawyer involved for the collection.
Offer a discount if the contract is paid for in advance. 10% is a reasonable number. You’d be amazed at how many people will jump on this. There are tax advantages for some, there are others who like the 10% savings. Offer this incentive and it will work for a percentage of the business.
Next, take credit cards and tell customers that they will be charged on a certain date on the following months. It can be a fixed amount or the actual amount of the service. Get a credit card backup on all accounts. Tell customers that they have ten days to pay the bill by check OR, the credit card will be charged. You’ll know if there’s a problem right away if you’ve got money issues with a client. Why wait until they owe you several months worth of work find out?
Get paid in equal monthly amounts NOT based upon anticipated work flow. This way you get even cash flow month to month and can plan accordingly.
As for collections after the service has been performed, the best action for a business to take depends on the type of account that is in default and whether you want to continue doing business with the client.
According to attorney Kurt Olson of Plymouth, Michigan a former prosecutor and assistant city attorney who specializes in business law, “A letter from an attorney’s office advising that if payment is not made within a certain time period will result in litigation with increased costs, possible attorney fees and other sanctions will often be effective. The business should make sure, however, that the collection notice required by the Fair Debt Collection Practices is included in the letter,” says Olson.
In a Business to Business collection, the letter from the attorney should be probing to find out if there is a problem with the product or service or simply a failure to pay. Also, if the client has no expectation of a continuing business relationship then the letter should be stronger than if the client wants a continuing relationship.
Smaller businesses are more likely to view a letter from an attorney more seriously, says Olson, but in both smaller and larger businesses any envelope with a return address of an attorney gets read.
If the initial collection letter efforts do not result in a payment then it is time to consider litigation but because litigation is an expensive venture a cost benefit analysis should be discussed with an attorney.
“If the amount of debt is small then a business owner will want to consider small claims court which is informal and less costly with a good chance of getting a recovery,” says Olson. “But in small claims court the business owner cannot be represented by an attorney but most appear on his own behalf.” In Michigan any bill for $3,200 or less can be processed in small claims court.
Some businesses consider hiring a collection agency as an option, says Olson, but an agency often will take only those cases they are sure of success and then will take 50% of the amount collected as their fee. For Olson’s clients fees can run from $125 for a simple letter to several thousand for litigation. Clients also can choose to work on a contingency fee basis.
Do bad things happen to good people? Yes you bet. Even as I write this I have clients who are negatively impacted by the changing economy and have slowed down their payments. What can be done about that? Stay in touch with the client make sure they know you are working with them. Furthermore if it’s a larger firm and others pay the bills, stay in touch with the person responsible for paying the checks, signing the checks etc. Develop a relationship with them, be polite, do not demand, be friendly, so when they have a chance to pay someone they select you over someone else. Sound simple? It is.
Slow Pay or No Pay Tips on How to Get Businesses to PayUp - To learn more about this author, visit Scott Lorenz's Website.
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