CCS Blog

Make Sure You Get Your Money from Your Customer

by Jim Martin

Where do you find the money to pay rent, utilities, your employees, your suppliers and all those other monthly expenses? You obviously use what your customers and clients pay you. But what if those funds don’t come in on time (or at all)? Ulcers and night sweats!! What can you do to keep the cash coming in on time? Here are a few ideas.

First, before you extend credit, research a client. Does he or she have a local reputation for paying on time, or do other small businesses refuse more business because of late payments? If the prospective client has a bad reputation, you might want to avoid dealing with him or her. Even if the client’s credit seems good, have him sign a contract before you begin any work. In addition to a statement of what you will do for him, you should include a schedule of payments and penalties for failure to comply with that schedule. If you have to go to court to collect, the contract will ensure that you win. If the project is large enough, you might want some prepayment. You wouldn’t sell a car without down payment. If they aren’t willing to advance money, you might reconsider undertaking the project.

With all that front-end agreement, you’re well positioned to collect late charges. (You did include them in the contract, didn’t you?) The best way to do this is to send them a late notice that reminds them of the date at which penalties are incurred. Ramp them up so the penalties grow as the delinquency stretches out. If your invoice contact still doesn’t respond, try to contact others in the company. Use a combination of both email and phone, and don’t be afraid to approach the client’s president (politely) if that’s what it takes to get action. If they are delinquent because they have customers who are late in paying them, consider sitting down with their top management to work out a payment schedule based on when they expect their invoices to be paid.

If you still don’t get a response, stop working on what they’ve ordered. It’s more practical to put your effort into the clients who are paying their bills. You’re in a much stronger position if you had requested progress payments. If you have consistent trouble collecting the intermediate payments, don’t ship the job when you’ve finished. Instead, send out an invoice that says, “Your order will ship within 48 hours of receipt of payment in full. Your reason for stipulating 48 hours is that you want to make sure their check clears before you deliver.

If you have a huge bill that is still unpaid, consider turning it over to a firm whose business is dealing with deadbeats. You won’t get the whole debt, but even 60% is better than nothing, and you can use that 60% to pay your bills and protect your credit. If you don’t want to discount the debt, consider taking the client to court. A loss in court will leave them with a permanent blemish on their company record (and will show up when any other prospective supplier runs a credit check). That provides them with a major incentive to pay at that time, before a trial began. If the amount is below the threshold, you can sue them in small claims court (which will be less expensive for you). With either level of court, won’t you be glad you started with a contract?

The bottom line is this: the more you do early in a relationship with a client to ensure that he will meet his obligations, the more like you are to receive payment on time. And that lets you pay your bills promptly enough to avoid conflicts with your suppliers.