We’ve all been there. Collections! You sent your bill, your customer owes you money, and they simply aren’t paying it. They’ve turned you into a bill-collector. Maybe they’ve promised payment you, maybe they haven’t. But the bottom line is that you are owed money and they are not paying.
Some people do their bill-collecting with a bit of yelling, toss in a few insults, and think they will somehow guilt or badger the client into coughing up the fees that are due. These credit collection tactics might occasionally work, but the relationship is gone and it can make it harder to collect. If there is any chance of ever doing business again, calling the debtor customer a "deadbeat", will pretty much burn that bridge.
Credit collections is probably one of the worst parts of owning a business. Nobody enjoys being a bill collector, dunning people up for payments, threatening their credit records, turning over their clients to a collection agency, or taking legal actions. For most of us, this is bothersome for several reason including the fact that we have almost certainly also lost a client in the process.
When you run your own business however, being a bill-collector is part of the process unless you are fortunate enough to have collected all your fees up front. Even then, there are those extraneous costs that are incurred that still must be invoiced and some people are simply going to want to rip you off.
Many small business owners are fearful that if they push collections too much, they will alienate their good client who will go elsewhere. They rationalize that if they keep providing services, the good customer will recognize the value of the services and do their part in keeping the business relationship.
Credit Collections and the "Good Customer"
Let’s destroy a “good customer” myth right here. If a customer isn’t paying their bill, they are NOT a good customer, even if they are your only customer or if they owe you a lot. Customers that do not pay their bills are ones that you can do without, even if they are the nicest people in the world.
Bill collecting is particularly hard in the home care personal services industry, especially when dealing with frail seniors. There is something about collecting money from older feeble folks that is particularly distasteful, and their kids who should be responsible get particularly nasty when you’ve called dunning “Mom” up for the money.
So how can you avoid collections issues or speed up the process? Here are a few tips to get you going:
1) Sign a contract. No matter how or when you get paid, if you have a contract that spells out the provisions of the service and the fees that are payable, this eliminates a lot of questions and problems. Contracts are critical in setting payment terms.
Many small business owners rely on verbal agreements. While this should work in an honorable world, often it doesn’t. Small business owners are often fearful of being too demanding of their clients and are afraid to pull out the contract. For the most part, anyone who is fearful of signing a contract isn’t going to be a good client anyway.
2) Shorten the billing cycle. Instead of 30 days, why not shorten it to 10 or 15, or even due upon receipt. This way, if you have a customer that isn’t paying, you know it sooner than later, and you have a reason to call the customer about the payment sooner. If people have several smaller bills instead of one big one, they are also more likely to get them paid on time. They are also less likely to ruin their credit over a small one than a large one as well.
3) Look at your invoices again. Are the billing terms visible and clear? If the invoice due date is not obvious, you invoice will probably go into a stack to be paid “sometime”. Being in the “sometime” stack is never a good thing. Also consider adding a late payment fee to the invoice. If money is tight, people prefer to make the payments on bills that will cost them the most if they are late. If there is no penalty and they don’t think you will cut off service, your bill goes to the bottom of the stack.
4) Get paid upfront. Okay, that’ s pretty obvious, right? Some businesses can get away with it and some cannot. Much of it is also on how the concept of upfront payment is sold. Consider these two statements:
A) “We usually ask for some amount of payment up front. Can you write me a check for $300?”
B) “For new clients, we require the first week’s payment in advance and then you will be billed weekly from that point on. The cost of service is $300 per week so I will need you to get me a check for that amount.”
The first one sounds like it is optional or negotiable and almost being asked as a favor. The second one sounds like it is a matter of policy and then the speaker keeps going, assuming that the policy is acceptable. Note that the speaker does not “ask” for the check, he pulls the listener in as a partner to help finalize the agreement. “I need you to…”
5) At some point in the collections cycle, you will have done what you can do. It then becomes a “collection issue” and it is appropriate to turn the client over to a bill collector. You have reached the point where you can no longer salvage this business relationship. You can write or make all the phone calls you want, but the customer just isn’t going to respond with a payment. Of course, if the customer has a problem paying their bill, why would you want to salvage the relationship anyway, right?
Collection agencies will take anywhere between 10-50% of the collected amount. That’s huge! But it’s better than going away without a dime and in smaller amounts, the cost can beat the hassles of going to court.
6) Small claims court is really your last resort and last chance at collecting the bill. If you don’t push your claim to this point, you simply aren’t going to collect from many deadbeats. Small claims processing fees can run from $30-70 and you can act as your own attorney. If you win, the judge will not only award you what you are due but award you the processing fees too.
The trick to winning in small claims court is to have all of your documentation with you. Without this, you will be hard pressed to win your case. Show up with contracts, any related memos and witnesses, invoices, payment reports, and correspondence from you or to you regarding payment.It’s not surprising that defendants will lie in court about what was said or agreed to. They will often try to modify the terms or reject any notion that they agreed to pay what you say they do. But if you have the documents to prove it, you will prevail.