The most frustrating thing about running a small business is EVERYTHING that is out of your control. One of these things is when your customers don’t pay you. Here are some tips on collecting that money which is owed you already, and which you need NOW. While you are waiting for your money, if you need some extra cash, you can consider getting a business cash advance.
Set Written Payment Guidelines – Before providing goods or services, make sure that the client has signed/initialed next to your payment guidelines. Also, outline the guidelines clearly on your invoices. If you want to offer a trade discount – giving a 1 or 2% discount to customers who pay quickly, this will often encourage payment – minimizing your cash flow issues.
Quick Invoicing – I wrote more about this in a previous article on minimizing cash flow issues.
Incentives – There are various types of incentives which will ease speedy collection, helping to minimize cash flow issues for a small business. An example of a “carrot” incentive is a trade discount – giving a 1 or 2% discount to customers who pay quickly. A “stick” incentive would be to charge interest for overdue accounts. Many companies who charge interest will waive it in the event of a good faith payment.
Reminders – Many experts advise sending out multiple reminders; however, for small businesses my rule is: One reminder, then pick up the phone. Depending on the size of your business, you might find that two reminders makes more sense – but the personal attention of a phone call can work wonders.
Present Options – Decide which options you want to offer someone who is not paying. Do you want to offer them an altered payment plan? Do you want to sue?
If You Sue – Make sure you have a good paper trail. If the amount owed is within the limit for your county, you can sue in small claims court (no lawyer). Make sure you have taken notes on all telephone calls and that you have the contract and paperwork with you. Before filing, let the customer know what you are planning to do, and see if you can convince them just to pay you. If you have any questions on how to sue in small claims court, contact your county clerk’s office. Unfortunately, winning in small claims court doesn’t always mean you will actually get the money. More often than not, just the threat of being sued will create the impetus to pay.