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Collect Your Money - On Time!
by Mike Burstein
Most SOHO and small business owners don't have the financial resources
to wait for their customers to pay them. The inability to collect
money in a timely manner is a leading reason for small business failures.
It's easy to fall into the trap of believing that if you don't offer
relaxed payment options your customer will go elsewhere with their
business. You may lose some business because of a strong financial
policy but good customers aren't frightened off by realistic repayment
terms.
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Creating and enforcing a sound financial policy for your company
should not be ignored - the consequences are far too severe! The
service or products that you. provide will limit some of your options
but no business is precluded from collecting their hard earned money
in a reasonable time frame.
The following list will help you as you formulate your company's
financial policy:
1. Do you clearly explain payment terms to your customers before
a transaction is completed?
2. Does your business lend itself to offering a cash discount vs.
30 day billing?
3. Do you accept credit cards?
4. Do you get proper ID with checks, including home and office phone
numbers?
5. Do your customers sign a contract for your services?
6. Does your contract clearly state payment terms, including default
remedies?
7. Does your credit application clearly state payment terms, including
interest rate, late penalties and collection fees?
8. Do you order a credit report on new customers who request a line
of credit?
9. Do you give customers credit without having them fill out a credit
application?
All of the above items can be used to help build a sound financial
policy. The cost of an attorney reviewing your contracts and credit
application will be money well spent the first time you are faced
with forcing a customer to pay in court.
Most business's wait too long before
attempting to collect their money.
Unfortunately, this just makes it harder to collect. It is not unreasonable
to call your customer immediately when they miss a promised payment.
Don't waste time with a customer who continually lies to you and
breaks promises to pay.
Once you have determined that you
cannot collect your money, engage a
professional debt collection agency to handle the debt. Even if you
have to pay 25% of the money to the agency, you are better off than
holding onto the debt in the forlorn hope that your customer will
pay you someday - it just doesn't happen!
An easy way to calculate whether the cost of a professional debt
collector will be worthwhile is to use the following formula:
Examples - your customer owes you $1000
1. You hold on to a delinquent account hoping your customer will
pay:
------- You collect $0.00
------- 100% of 0.00 = nothing
2. You turn the debt over to a collection agency after making several
calls sending letters - the agency charges a 25% contingent fee:
------- The agency collects $1000.00
------- 75% of $1000 = $750.00
Obviously, you would be far better off with $750 instead of nothing.
Don't worry about what you have to pay the agency since the longer
you wait to collect, the less probability there is of you collecting
anything.
Your financial policy needs to clearly
pinpoint trigger points that will help you
manage your accounts receivable in a timely and responsible way.
Clearly stated terms and careful credit analysis will also be a large
factor in your ability to keep your business on a sound financial
footing.
Assuming that you have provided your
services or product as agreed, your
customer should have no qualms to pay you promptly under the terms
of the
sale. Don't be afraid to ask for your money when it is due!
© 2007 DEC - Contact Mike Burstein at mailto: SOHOWiz@SOHOWiz.com
or visit http://www.SOHOWiz.com for the latest FREE business tips.
Mike has been helping SOHO/Small Business owners grow & prosper
for over 20 years by solving start up problems, creating best practices,
automating their offices, getting free publicity and dramatically
increasing traffic and sales.
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