Great Ideas for your Small Business: Collect the Money People Owe You
When people owe you money, it hurts you and your business. No matter how careful your credit-granting policy may be, someday, sometime, some people will fall behind on their bills and owe you money.
The key to collecting money from customers is to do it in a way that won’t ruin the business relationship. First, you have to determine whether the person or company has temporarily fallen on hard times, or if it is going under and has no ability or intention to pay up. If a good customer is experiencing a short-term cash flow crunch, you might want to be patient. But speak directly with the business owner and tell him or her that while you are prepared to wait a few weeks longer for payment, you expect to be paid what is owed on the account. You should also ask for a partial payment as a sign of good faith.
If you find out a customer is going out of business, move quickly to try to collect something before all the assets vanish. Ask your lawyer to write a strong collections letter.
If there is no immediate response, you might look into filing what is called a “writ of attachment” in court. This puts the matter before a judge, who can call a hearing to deter- mine whether there are any assets to attach. You may not end up being paid in cash, but if the business is liquidated you could end up with office furniture, a truck, or some other equipment. However, try a firm collections letter before going to court.
When you write a collections letter, be sure to:
- Clearly tell the customer what he owes.
- State your demand; spell out exactly what you want him to do.
- Explain your next course of action if he doesn’t pay right away.
If you don’t have the time, patience, or staff to deal with deadbeat customers, it might be better to turn matters over to a collection agency. Collection agencies work on a contingency basis, usually keeping about 35 percent of what they collect as payment for their services.
Tips for finding the right collection agency
- Ask for a client list; call other clients for references.
- Visit the company offices to check out the operation first- hand.
- Try to meet with the owner or manager.
- Don’t base your decision primarily on price, because paying an agency a higher percentage to work harder on your behalf may actually bring in more cash.