By Sibylle Hauser
October 2009

How do you deal with customers who pay their bills late or not at all? This is a problem faced by virtually every business…and accounts not paid within terms can severely impact cash flow. A clearly defined and carefully communicated yet diplomatic payment policy is an important part of running a successful business while retaining a good professional relationship with customers.

These 10 simple steps can dramatically improve your collections results: 

1. Have a defined credit policy. Make sure your terms of payment are clearly stated in writing.
2. Invoice promptly and send statements regularly.
3. Use “address service requested.” Print or stamp on the envelop just below your business return address. The postal service will locate a change of address and send you the correct address for a small fee.
4. Contact overdue accounts more frequently.
5. Use your aging sheet, not your feelings. Don’t let accounts age beyond the point of ever being collected because you “feel” the customer will pay eventually. While there certainly are isolated cases when this strategy is appropriate, the truth is that if your business isn’t being paid, someone else probably is. You’re not on their priority list!
6. Make sure your staff is trained to be firm yet courteous when dealing with debtors. If you have a debtor on the phone and you accept credit cards, try to get a payment right then. Promised checks might never be mailed.
7. Admit and correct any mistakes on your part.
8. Follow the collection laws.
9. Use a third-party earlier rather than later. The time and financial resources budgeted for internal collection efforts should be focused within the first 90 days, when the bulk of accounts can and should be collected.
10. Remember that nobody collects every account. 

It’s also valuable for you to know how to recover collection costs, service charges and attorneys’ fees, especially if your invoices state that those costs will be owed if the invoice is not paid in a timely fashion. Without signed agreement, recovery of those costs is not legally enforceable.

A statement on collection cost and attorneys’ fees for your contract could look like this:  “If collection fees and/or attorneys’ fees are incurred by any party rightfully enforcing the terms of this contract, that party shall be entitled to recover such collection fees and attorneys’ fees from the party in breach of this contract.” (Please check with an attorney for your specific business purposes.) 

Service charges, finance charges or late fees at an interest rate higher than 10% may be owed if provided for in a contract. This provision might increase the motivation of the debtor to pay in a timely manner. Statutory interest at 10% per year is added to any judgment on a contract debt. 

Sibylle Hauser is a profit recovery consultant with Transworld Systems Inc. For more information, visit www.transworldsystems.com or call 619-335 7525.