A Plan for Collecting on Receivables

If outstanding receivables are keeping your small business from making a profit, start 2012 with a plan to collect the money that is due to you, without alienating your customers. Here are some tips on how to accomplish that delicate balance.

1. Start with a step by step plan that includes timelines and consequences. Make sure all the details are laid out in the contract between you and your client. Expectations should be clear to avoid having to collect.
2. I suggest giving your customers 30 days to pay their invoice. This is more than fair, and regardless of the size of your customer (individual, small or large business), 30 days should work into everyone's payment schedule. Keeping the terms the same for all clients will make it easier for you to track past due amounts.
3. Make sure you include a late fee for payments that are received after 30 days. Remind the customer of the late fee by adding a comment on their invoice. This will be an incentive for the client to pay on time and can be used as a bargaining element if you have to try collecting later.
4. If you still have not received payment after 60 days, you will need to call the customer, weekly if necessary. This is not always easy, but follow these simple rules to keep focused on your goal.
• Make a script. You don't have to read it, like telemarketers do, but if you have a written script of what you need to say and practice before you call, you will be able to control the conversation better than if you "wing it."
• Make sure you are talking to the right person. Don't say anything about past due invoices to anyone, besides the person who takes care of accounts payable. The last thing you want is for your customer to get angry because you led an entry-level employee to believe that the company can't pay their bills.
• Document everything! If you have to call your client back, after the initial call, you'll be able to reference what was previously agreed to. Even better, within 24 hours of your phone call, follow up with an e-mail, outlining what was agreed to.
•  Consider having someone else make the calls for you. As the business owner, you and your business are considered the same entity by a client. If your customer is mad, frustrated, annoyed with you, it will reflect on any future business or referrals. Delegate to an employee or a Virtual Assistant to play "bad cop," while you get to play "good cop," and keep your first-class business name.
5. At 90 days, it is time to get serious. I recommend sending a certified letter to your client, letting them know that if the bill is not paid within 10 days of receiving the letter, your next step will be sending the bill to a collection agency or sending to arbitration. Make sure the letter is well written, so it doesn't come off as a threat, but as a courtesy. Sometimes, bills get paid to the "squeaky wheel." Letting your customer know that you are not going to give up and you are prepared to take further action will hopefully be all it takes to get paid the full amount you are due.
6. Make sure you follow up. At 100 days, you need to seek outside help. Be aware that at this point, you will most likely not get back the full amount that is due to you. You will also lose your customer and any referrals that you could have received from them, if you haven't already. Honestly, at this point, you have probably already decided not to do business with this customer again, anyway.

This is obviously just an outline for you to follow. A different timeline may work better for you, just make sure that you lay it all out in your contract and stick to it. The longer you let outstanding receivables go without being paid, the harder it will be to collect the money you are owed.