You sell the product or perform the service and send a bill, and the customer pays. End of story.
Not always. While most customers will pay you promptly for your work, there will always be those who are slow, or don’t pay at all. This can be more than an irritation; it can stifle your cash flow and cause problems for your business, especially if large amounts are involved.
The best way to address a collections problem is prevent it from happening. Make sure your clients understand and accept your payment policies before doing the work. If you provide a service, there’s usually nothing wrong with asking for partial payment up front, with the balance due upon completion. For large or long-term projects, you can make arrangements to be paid at regular intervals or as major milestones are achieved.
Make sure your payment terms are also spelled out on your invoices. Specify a payment deadline or period (e.g., 15 or 30 days after issuance), plus a penalty for late payments. Again, make sure your customers understand this policy ahead of time so that they can’t claim to be “surprised” by your requirements.
Your invoices should include your company name and contact information, and a summary of the work performed including itemized costs for time and/or materials. Including this data in an email message is sometimes acceptable, but a formatted document is usually preferred, whether it’s sent by email or via the Post Office. Ask where it be directed to help expedite the payment process. If it’s someone other than the client, get a name and contact information
Don’t let overdue invoices start to age. If the deadline passes with no payment, call the customer or contact person and politely ask about the status of your invoice. Many companies do wait until the last minute to issue payments, so the check could well be “in the mail.” Or, there may have been an accounting issue. Document each call and what happened, then follow up again.
If your payment still isn’t forthcoming, notify the customer that some action needs to be taken. Again, be polite and professional. If they are having financial difficulties, they may want to negotiate partial payments as their resources permit. That’s fine, as long as it doesn’t hurt your cash flow; but the late fee should still be included. If you see no hope of receiving payment, it may be time to contact an attorney or collections agency for assistance.
Collections are just one critical financial issue your small business can face. For expert help and advice, contact SCORE “Mentors to America’s Small Business.” SCORE is a nonprofit organization of more than 12,000 volunteers who provide free, confidential business mentoring and training workshops to small business owners. To find the SCORE chapter nearest you or to chat with a mentor online, visit www.score.org.