Becoming a Collections Expert: Seven Basic Tips

Michelle V. Rafter
Oct 29, 2009 -

Got a client who won’t pay their bill? Join the crowd. Collecting on overdue bills has always been a challenge for small businesses that can’t afford the legal muscle of bigger companies, and “This economy has made it that much worse,” says Jeanne Achilles, owner of a
New Jersey public relations and marketing agency that’s had its fair share of deadbeat clients over the years.

Here are some suggestions Achilles and small business experts have if you’re going after overdue payments, and how to avoid getting into the situation in the first place:

* Put it in writing. Always work with a written contract. By spelling out terms of a project in print,
both the service provider and customer know exactly what’s covered, and what isn’t. Achilles,
owner of The Devon Group, a Middletown, New Jersey, marketing, PR and direct mail firm with annual billings over $1 million, suggests including language that specifies which legal jurisdiction has authority should a contract dispute end up in court – a simple thing if you and your customer are both in he same state, not so simple if you’re not. SCORE, the nonprofit business self-help group that pairs retired execs with small business owners, also suggests spelling out any surcharges for late payments on invoices.
* Develop credit standards. If you provide goods or services on credit, create standards clients have to meet before you’ll extend it to them, put them in writing and make sure your employees know what they are, SCORE suggests.
* Structure partial payments. Avoid getting stuck doing all the work for none of the pay by arranging to receive a partial payment up front. If you’re working on an ongoing or multi-part project, arrange to receive partial payments at agreed upon project milestones.
* Don’t wait. If your contract states bills must be paid within 30 days of services rendered, don’t feel bad about following up when day 31 rolls around and you don’t have your money. “They’ll pay you if they know you’re going to complain,” Achilles says. “But if you’re passive about it, your invoice goes to the bottom of the pile.”
* Don’t be shy. Some clients get tough, nasty or practice other avoidance behaviors to get around paying what they owe. Fight fire with fire, to a point. Small claims court is the toughest weapon in Achilles’ arsenal. Before going there, she sends email, calls and sends demand letters signed by her attorney. And she talks tough when she needs to. Right now a client is disputing finance charges stemming from an overdue payment. “It’s a big company so they wouldn’t have to let go of anyone to pay it, but he’s trying to arm wrestle me on the issue,” she says.
* Use a collection agency. If all else fails, you can take a delinquent client to court, or turn them over to a collection agency, which may charge a fee or percentage of the overdue amount in exchange for their services.
* Write it off. If the amount you’re owed doesn’t warrant going after a client in small claims court or paying a collection agency to pursue them, write it off as a bad debt. Should you do business with that client again? Use your best judgment, SCORE suggests, but if you do, consider asking for stricter terms,
such as up-front payments.