Small business owners tend to wear many hats; they can be managers, marketers, IT technicians,accountants, and office assistants. But in today’s economy as valued customers struggle to pay their financial obligations, many small business owners are finding that yet another hat has been added: debt collector.

When customers withhold payment, the cash flow of the business is essentially compromised by an interest-free loan. One way to ensure that customers fulfill their obligations is to offer payment plans. Here are a few commonly used payment plans for outstanding accounts:

  • Create an installment agreement: Divide the money owed into equal payments, to be paid regularly over the next several months. To demonstrate goodwill, be flexible about the length of the payment period and the size of the payments.
  • Require a down payment: When you discuss a payment plan with a customer who hasn’t paid, it’s a good idea to require a lump sum partial payment at the start. You want your customer to know you are serious about collecting your outstanding bill.
  • Charge interest or a late payment fee: You might want to consider charging a low interest rate or a small late payment fee, since you are in essence lending your customer money.
  • Create a rule about ongoing business with your customer: Decide whether you will allow your customer to charge more goods or services. Do you want the bill completely paid off before the customer purchases more? Or would you prefer an active customer who slowly pays bills over a period of time?

Regardless of which options you choose, it is good business practice to have a written, debt collection agreement with your customers. Include consequences if payments are missed, and define what constitutes default. With a little flexibility and some carefully crafted payment plans, not only can you preserve your business’ cash flow, you can hold on to your valuable customers. It’s a win-win situation.

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