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Cashing in on collections

A plan to getting paid on time in just 31 days

                                                                                                      By Michelle Dunn

The cash-poor business: day 1

Everyone has gone home for the day and here you are scanning the accounts receivables report. You can’t believe what you’re seeing—so many customers are past due. How can you get them back on track to pay on time and in full?

You thought you were limiting your risk by accepting credit cards and only issuing credit to people you know. It looks like your payment terms are “net later.” Sure, it’s a tough economy and it’s going to get tougher if you don’t take action. You hate calling people asking for money, especially since you’ve already earned it.

Maybe you need to just get organized and implement new policies and procedures. Yep, that’s it. Start cracking the whip, dig yourself out of this hole and pull yourself up by the bootstraps! (There, just what you needed—a pep talk.) Ugh. You’d rather be doing anything else than chasing people for money. There’s got to be a smarter way to stabilize cash flow!

Small business debt dilemma

If you can relate to this scenario, you’re not alone. According to a recent online survey of business owners by the web-based legal service Rocket Lawyer, 49% of respondents wrote off bad debt last year. With 43% reporting accounts older than 90 days, these companies were on track to repeat the same performance.

While over half use legal contracts for protection, only 34% and 30% call late paying customers and send formal demand letters, respectively.

“Business owners struggle with the time and skills it takes to effectively manage collection activities. It’s also very personal. How do they get paid when their customers are suffering from job loss, house loss and the rising prices of everything,” said Michelle Dunn, credit and collections expert.

“Something to remember when you are lenient with customers who are past due: If they owe you money, they probably owe others money and whoever takes action first, gets paid first.”

Dunn, who has owned and managed a debt collection agency, teaches others how to collect debt and provides insights for business owners through her websites, speaking engagements, books and webinars (www.MichelleDunn.com or www.Credit-and-Collections.com), says that when it comes to debt collection, “You have to do it! If you don’t want to do it or aren’t confident about how to collect a debt, hire a qualified agency to do it for you.”

Irv Pollan, vice president of Jacksonville-based NCC Business Services of America Inc. (NCC, www. NCCBusiness.com) says, “Before contacting us, past-due accounts must be thoroughly documented to prove the customer actually owes the debt. We then take the appropriate steps to locate and make contact to negotiate a payment.”

“While a demand letter may seem like a simple thing, all debt collection activities must follow the letter of the law, ” he continues. NCC, a third-party debt collection agency founded in 1986, offers small businesses low-cost and time saving demand letter programs in addition to contingent fee-based services.

Being in debt and collecting debt is not easy. “We train our team to work effectively and monitor their performance,” Pollan says. “At the same time, we understand the overwhelming circumstances many people face and are in a unique position to help them get out and stay out of debt.”

What you can do day 2

Try following Dunn’s “it must be done” advice. If not you, then assign these activities to an employee.

•Call anyone with a balance over 60 days. Make sure everything is OK, ask what you can do to help them pay the bills on time and get a payment promise today.

•Send a letter following up on your call — mail it immediately! It can be short and sweet, but must be very specific. Make sure to mention how much will be paid and by what date.

•Follow up! If you get a machine, call again and send a letter.

The next 28 days

Remember that pep talk to get organized with new policies and procedures? Here are some steps to get you started.

  1. Print out or buy credit applications. (See www.michelledunn.com/free.html for an example.)
  2. Put them on a clipboard at the front desk and on your website.
  3. Have every new customer fill one out.
  4. Mail one to every existing customer with a stamped, addressed envelope.
  5. Check all references on any completed applications.
  6. Set firm credit limits.
  7. Set terms for every customer and print them on all invoices and statements.
  8. Research debt collection laws.

Differentiate differences

Remember that while the economy is struggling, so are your customers—many of whom have never had a problem paying their bills. Differentiate between customers who’ve always paid on time and are now having a problem and those who regularly pay late.

Taking any or all of these steps will only help you to collect money in the short term. Without making changes, such as having a credit policy, conducting credit checks or retaining a debt collection agency, you’ll be right back where you started next month.

You have arrived!

Hooray! You have reached day 31 and now have fewer accounts that are past due and you have the systems and relationships in place to effectively manage your accounts receivables moving forward. Much better.

Michelle Dunn is an award winning author and columnist frequently featured in the Wall Street Journal, CNN and Forbes. Look for her books in paperback, hardcover and now on Kindle! Visit Michelle online at MichelleDunn.com & Credit-and-Collections.com

 

 

 

Michelle’s 17 tips to getting paid

  1. Require payment at the time of service.
  2. Invoice customers on a regular basis and as soon as the work is completed.
  3. Make sure the due date is clearly visible on invoices.
  4. Change your payment terms. If your terms are net 60 or net 45, change them to net 30 or net 15.
  5. Offer an early payment discount to anyone who pays early, such as 1% or 2% off the bill for payment within 10 days.
  6. Act early. When an account reaches 30 days, take action.
  7. Call big accounts or accounts with large balances 10 days before the invoice is due to make sure they have the invoice, the correct address to send payment and that the invoice is scheduled to be paid.
  8. Be as flexible as you can with payment plans.
  9. When setting up payment plans remember that you want as much as you can get as frequently as you can get it.
  10. Be picky about new customers.
  11. Have a strong contract.
  12. Run weekly accounts receivable reports and follow up with any accounts that are past due or becoming past due.
  13. Don’t extend credit blindly.
  14. If a business owes you money, visit them. If it’s a restaurant, go there for lunch. If it’s a printing company, get something printed or copied. Every time you walk in they will see you and it reminds them that they owe you money.
  15. Direct the account’s salesperson to collect the money or withhold their commission until the bill is paid.
  16. Reduce minimum orders. You could possibly get more orders for less money paid up front.
  17. Use a collection agency.

 


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