It is certainly troubling, especially in a sluggish economy, when customers fail to pay their bills in a timely fashion or at all. It is perhaps even more irksome when you experience a payment problem after you have exerted your best efforts to render valuable services or deliver high-quality goods. Of course, there can be serious financial consequences to non-payment or late payment, especially if it becomes a common occurrence. The good news is that there are ways to reduce payment problems and, thus, improve cash flow.
The first step one can take to avoid payment problems is to require all existing and new customers to sign a contract, setting forth the basic terms of your business transaction. Having a contract, even a very basic one, accomplishes several objectives. First, it helps to make customers take you more seriously. It is certainly more professional to require written agreements in your business deals, rather than relying on verbal ones. Additionally, since even a basic contract will set forth the essential terms of the transaction, its existence can help to avoid disputes resulting from ambiguity. Quantity and pricing issues can be specified clearly. A written contract is also the best place to set forth, in strict terms, your customer’s payment obligations. For example, a statement requiring payment to be made within ten days of the invoice and indicating that interest will accrue after a certain time, can be very helpful in ensuring prompt payment.
Even in the absence of a written contract, a properly drafted invoice that draws customer attention to firm payment terms can assist in improving the collection of receivables. Whether you use a written contract, a detailed invoice, or both, it is extremely important to resolve a payment problem as quickly and aggressively as possible. If you are a business owner and you have a personal relationship with a customer, it is best to have an employee handle the matter. The position taken by the employee should be firm. One should not be quick to give the customer latitude in making payments in a timely fashion, at least not at the outset. Customers tend to take more time in paying their bills if they think there is no urgency. Additionally, prompt follow-up with customers who are delinquent is imperative. The more time that passes, the less likely you will be paid.
There will be occasions when your attempts to collect receivables will be unsuccessful. In that event, you may prefer to negotiate a settlement or payment plan with the customer rather than resorting to litigation; however, the customer must know you are serious and that you are willing to proceed if litigation becomes necessary.
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