It’s easy to say what other PROs should do about customers who don’t pay, right? Be tough! Cut ’em off! Take ’em to court! But when it’s your own customer, it can be more difficult. This is especially true if the customer who has neglected to pay is someone you’ve done business with for years.
Collections can get a little sticky, especially if you operate a business in a community small enough that you might see the guy who owes you money eating a Porterhouse steak at the table next to you in a restaurant after you’ve ordered the burger special. In cases like this, effective collection is also good public relations. You want him to pay without making either of you look bad in the community. Screaming at him and demanding payment in public would tarnish both your reputations.
YOU’RE NOT ALONE
Small businesses are vulnerable to not getting paid because many customers of small businesses are other small businesses, and up to half of all small businesses don’t last five years. On the other hand, small businesses that have been around a long time are remarkably stable, so you don’t want to risk losing a long-term customer over one missed payment.
Also consider this: a customer who owes you money probably owes others money. Your goal is to position yourself at the front of the line. How do you do that? By keeping in contact. Make your bill their top priority.
LOOK BEFORE YOU LEAP
The key to successful collections is keeping lines of communication open. Constant communication trains customers to pay bills promptly and leads to an efficient, professional relationship. Usually, a polite telephone call to ask about a late payment will get the ball rolling, or at least tell you when to expect payment.
Before you pick up the phone in a rage to call a delinquent customer, review their history with your company. If this is the first time a customer has been late in paying, it could be a bookkeeping error or a temporary cash flow problem. Maybe they moved to a new office, installed some new accounting software or hired a new person who is still learning the ropes of bill paying. It could be that your client is waiting for their customer to pay them. If you’ve successfully dealt with all parties before, that might be all you need to hear.
If your review indicates the client has been late in paying before, consider how the situation was resolved in the past. If problems need to be addressed before payment can be issued, your phone call will let you start clearing them up.
When making the collections call, be professional and use a pleasant respectful tone of voice. But get to the point and clearly explain why you are calling.
If you don’t receive payment in the agreed upon timeframe after an initial phone call, call again. Generally the longer a debt goes unpaid, the harder it is to collect. You can continue sending past due notices and collection letters, but phone calls are harder to ignore.
TIPS FOR MAKING A COLLECTIONS CALL
1. Have a plan. Before you call a customer, have a few options ready to present them.
2. Remember to listen. When you get the customer on the phone, be patient and listen. You can’t work with them to resolve the problem unless you hear what the problem is.
3. Get it in writing. If your customer agrees to a payment plan, get the agreement in writing, then follow up as soon as the agreement isn’t being met.
4. Be prepared next time. You know the old saying, “Fool me once, shame on you; fool me twice, shame on me.” If a habitually delinquent customer comes back for more service, insist on payment upfront.
COLLECTIONS
If a delinquent customer refuses to talk with you or won’t commit to a payment plan after you’ve tried repeatedly to work something out, you may be facing a bad debt situation and need to take further action through an attorney or collection agency. You may recover more money using one option or the other, depending on the total amount of the debt and the hourly rate or percentage the lawyer or agency charges.
If you decide to go with a collection agency, ask friends or business owners for referrals, or look in the Yellow Pages to find collectors who handle your type of claim. To make sure the agencies are reputable, contact the Better Business Bureau or your Secretary of State’s office. Collection companies must be bonded with the state they do business in.
Most collection agencies take their fee as a cut of the collected money, so there is no upfront cost to you. Shop around to find an agency with the best rate.
BANKRUPT
If a customer who owes you money files for bankruptcy, you are legally prohibited from any further collection efforts. You will receive a bankruptcy notice with a “claims bar date,” which is the deadline for filing the paperwork required if you want to share in any distribution of funds. If you don’t file by the claims bar date there is no chance of recovering any of the money owed you.
An attorney can answer questions you have about bankruptcy proceedings, help you understand your options and decide on the best course of action. But don’t assume you’ll never collect what is owed you when a customer declares bankruptcy. Companies may emerge from bankruptcy stronger than before and able to pay their bills, while companies that are liquidated are able to pay creditors at least a portion of their debts.
SHARE YOUR ADVICE
I’d like to know what techniques PRO readers use to get paid; or feel free to vent and share your stories of not getting paid. E-mail me your story or post it on the PRO magazine Facebook page.
