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.
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!
© 2003 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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