When The Customer Won't Pay

By Janet Attard

As the recession grinds on, more and more businesses and consumers are feeling the pinch. Hit by a double whammy of lower-than-expected sales and difficulty in getting credit, some businesses  and consumers are trying to solve their cash problems by paying their bills more slowly. And, unfortunately, bills from small businesses are often the ones that businesses and consumers think they can delay paying.

That doesn't mean your business should accept slow payments as a fact of business life. There are a number of steps you can take to collect outstanding receivables and to get customers to pay on time.

Start With A Credit Check

The best way to solve late payment problems is to avoid them to begin with. Before you accept a new client or ship merchandise on credit, run a credit check. Also, be sure to discuss your prices, service fees and payment requirements with new customers before you do their work or fill an order.

If you work on a retainer basis or provide services under a contract, make it clear what services you will charge for, what deliverables the customer will get for the fee, and what work will incur additional charges. Be sure to let the customer know how often you will bill and how long they will have to pay each bill.  Put it all in writing and be sure to include a section about your rights and responsibilities regarding ownership of products, intellectual property, or records of work you perform, if bills are not paid.  (Have your attorney draw up a boilerplate agreement that will work for most customers or clients.)

Stay On Top Of Billing Chores

Send out your invoices promptly at regularly scheduled intervals. Be sure the client can tell that your mailing is not just another flier or sales letter from your company. You may want to stamp the envelope "Invoice Enclosed" so it doesn't accidentally get thrown out.

Don't Ignore Unpaid Invoices

The longer an invoice is unpaid, usually the less likely you are to ever see your money.  To avoid losses, send out reminder notices promptly to any client who doesn't pay within a predetermined time frame - usually ten to 30 days.

If a client still doesn't pay after reminders are sent, have someone from your accounts receivable department call the late-payer and try to determine the cause. If you don't have an "accounts receivable department," have a spouse, secretary or bookkeeper play the role. If the customer is one you want to keep and is worth keeping, using such an intermediary will make it easier to maintain a good working relationship with the customer after the bills get paid.

If the company or individual is having a financial problem, offer them a chance to pay you in installments.

If those initial attempts at collecting do no good, consider more aggressive means to collect what you are owed:

• File suit in small claims court. You don't need to hire an attorney to sue in small claims court, so if the client is nearby (you have to go court where the client is located), this can be a low-cost way of pursuing your claims.
• Contact a collection agency in your state and let the collection agency tackle collection. Find out in advance what the collection agency will charge for its services and call the Better Business Bureau to make sure there are no unresolved complaints against the collection agency you plan to deal with.
• Have the collection agency report the debtor to credit reporting agencies.
• Retain the services of an attorney if the amount is significant enough to warrant the attorney's fees and attention.

What NOT to do

Don't tell your friends at the weekly Rotary meeting that the customer is a deadbeat, and don't plaster online bulletin boards or mailing lists with notes telling the world that your customer is a bad credit risk.  If you do things like that, you can get yourself sued. You can also get yourself into legal hot water by making threats, using harassing or abusive language, making collection calls at odd hours or too often, or by making false statements about what will happen if the debtor doesn't pay.