Dealing with unpaid receivables


Published: Monday, January 13, 2003 at 6:01 a.m.
Last Modified: Sunday, January 12, 2003 at 10:37 p.m.
When small business owners take stock of their companies' year-end finances, many undoubtedly get an unpleasant surprise: a pile of unpaid receivables that have accumulated over months.
In such a case, there are two problems business owners must address. They must get the money they're owed and, if there's a sizable amount of receivables, avoid a similar situation in the future.
Getting your customers to pay up can be dicey, especially if you want to keep on doing business with them, said Eric Tyson, author of "Small Business for Dummies."
"You have to be careful not to tick off clients or offend them in any way" - but still try to get them to pay, he said.
Of course you're going to want to call or e-mail customers, but before you start screaming, you need to find out why they're not paying. Often customers don't pay because they're having financial difficulties. But the problem might rest with your company - perhaps your customer's nonpayment is an expression of dissatisfaction with a product or service.
When a customer is struggling with cash flow and other problems in the short term, you might find you need to compromise, Tyson said, noting that "it's better to get something instead of nothing."
Moreover, in the case of a customer you want to keep, you'll engender plenty of goodwill by being understanding while they're getting their finances in order.
Probably the best approach is to work out a payment schedule with the customer.
If it's not a money issue, "make sure it's not something you've done or that your employees did," Tyson said. And if the problem is at your end, his advice is to "listen nondefensively."
He recommends business owners make a real effort to rectify the situation and, again, consider a compromise over the bill.
"People are willing to shop around if they get lousy service," Tyson said. "Don't make the mistake of underestimating the long-term revenue and profit potential of a customer."
Of course, some people balk at paying simply because they're bad customers. Once you've established that there are no other reasons for their nonpayment, you need to decide if you want to go to the expense of a collection agency, or the time and costs required for small claims court.
Tyson noted that with bad customers, it's probably no great loss if they respond to your actions by turning to one of your competitors. So getting tough won't hurt you.
While dealing with the unpaid invoices that have already piled up, you need to look at your accounting system and determine how to avoid the same mess going forward.
Some business owners are paid late simply because they don't get their bills out on time. This can be a problem for entrepreneurs whose talents often lie more in building a business, not doing administrative chores. It's also a problem for people who are disorganized.
Tyson said some business owners might do better by requiring payment up-front, in much the same way many doctors or dentists require a fee to be paid at the time of service. This is also a way to ensure that customers who are slow to pay don't fall behind.
Whether you take that approach or use invoicing, you need to have a good accounting setup that will help you track bills and let you know whether they've been paid. Software designed for small businesses can help accomplish that.
If you just don't have the time or patience to deal with receivables, you should consider getting outside help, such as a billing service. You might find that the expense will be justified by a more even cash flow.
There are other, more strategic ways of improving your payment rate. Tyson noted that in prospecting for new customers, you need to think about their ability to pay, and their past payment record. That calls for a credit check - another expense, but again, probably worth it to avoid headaches in the future.
Any search engine on the Internet will help you find services that check on businesses' credit.

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Check the credit histories

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