Getting Paid: How to Handle Accounts Receivable 2

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Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
     
DIRTY TRICKS WARNING:

From time to time you will run into a business that has no intention of playing fair with small business vendors. Such businesses are often surprisingly large and regularly chisel vendors or subcontractors out of anything from a few dollars here and there to a few hundred dollars, knowing full well the small vendor won't do much more than raise an eyebrow or kick a tire because (a) the amount is too small to be worth pursuing legally, or (b) their business is too important for the small vendors to jeopardize by insisting on full payment. If you run into one of these businesses, you basically have three choices.

• make a fuss and risk losing the client
  
• waste your time and money going to court and, later, try to collect on any judgment you are awarded
  
• swallow pride, your tongue, and a little gall, and accept the lower fee as yet another cost of doing business
  
  Unfortunately, the last option is usually the most practical from a purely business point of view since it wastes the least amount of time and money—which is why the bigger company knows it is likely to get away with its tactics.
  
• If you are working for a federal or state government agency or a prime contractor to a government agency, ask if they have a program to pay small businesses within 30 days. If they do, find out what you have to do to be part of that program.
  
• If you are working for other businesses, consider offering a discount for payment within 10 days. A common discount is 2 percent for payment within 10 days.
  DIRTY TRICKS WARNING:
  
  If you offer a discount for early payment, you will find some companies will take the full 30 days or more to pay and then still take the discount. You can argue with them, insist on payment, or ignore the "mistake." What you do will probably depend on whether or not you want to do business with the company in the future.
• Send out invoices as soon as jobs are finished. The sooner your invoices go out, the sooner they are likely to be paid. If you deal with businesses that run payables only once or twice a month, and your invoice reaches accounting the day after the company ran payables, your invoice could take 15 to 30 days longer than it should have to get paid.
  
• Look into the possibility of getting merchant status and accepting credit cards. If you are approved, depending on your agreement with the company, you will usually get paid by the credit card company within 2 days to 2 weeks.
  
• Decide, based on industry norms and your experience with individual vendors, how long it should take to get paid. Any time you do not receive payment within the time limit you set, send out a reminder or overdue notice immediately. Follow up with repeat notices at regular intervals until you get paid. The longer you wait to collect on late accounts, the harder it may be to collect.
  
• Be persistent if you have trouble collecting. The adage about the squeaky wheel getting the grease holds just as true for collecting from accounts as it does for other situations.
  
• If possible, don't start a new job for a company until you get paid for the previous one.
  
• If you sell to businesses and have a computer and modem, consider checking the credit rating of potential business clients. You can get a brief credit report (called a "Snapshot report" from Experian.com for only $19.95. That's a small price to pay to avoid bad credit risks. You can order Snapshot reports from: http://www.experian.com/business/credit_report.html

I've done a lot of work for a company that always seems pleased with my work and pays on time. Now, they are more than two months late paying me and won't return my phone calls. Could it be they were displeased with the last two projects I did for them?

When a customer who appears to be pleased with your work stops paying on time and won't talk to you about the problem, there is good reason to suspect the company is having a cash flow problem and that the missing payments are a result of their cash crunch, not the quality of your work.

What can I do to get them to pay me?

This is always a difficult situation for a very small business. On the one hand, if the customer is big and has provided a lot of business in the past, you may not want to lose their future business. Thus, you may not want to be too aggressive in your collection efforts. On the other hand, you can't stay in business if you don't get paid for your work in a reasonable amount of time. If you are a freelancer or a very small business, very late payment for just one or two large jobs can affect your ability to pay your own bills if you don't have much spare cash.

Therefore, the first thing you have to do is decide whether you want to keep this customer's business and if the business is worth keeping. If you sell to businesses rather than consumers, one thing that may help you decide if a customer's business is worth keeping is to talk to other business owners who sell to the same company. Find out what their experiences have been with the company. Trade or business associations are a good place to make such contacts. If you start hearing things like "They do that to everyone" or if you learn several other suppliers or freelancers have stopped doing business with the company, you may well want to consider crossing the company off your customer list. Networking with other business owners can also help you avoid losses and payment delays by alerting you in advance to companies that are known to be slow or late payers.

If the business is worth keeping, about the best you can do is send statements with polite reminders of the unpaid bill each month and continue to try to reach your contact at the company. If you do succeed in reaching your contact, try to find out the reason for the holdup. If the company is having cash flow problems, suggest they pay you part of the outstanding balance every 2 weeks until the invoice is paid. If you don't want to deal with the customer in the future, send a series of firm (but not threatening) collection letters. Phone call reminders may also help pry money loose from the company. If the company doesn't respond to your letters or calls, you might consider suing them in small claims court if the amount involved is within the limits set in your region. Occasionally you will find that a company will pay what it owes shortly before the day they are told to appear in court.

What should I do if the customer keeps calling me but isn't paying?

Basically, you have only four choices:

• Thank them for thinking of you but tell them you can't ship merchandise or start new projects for them until they pay part or all of what they owe you.
  
• Refuse to do business with them at all.
  
• Ship goods on a COD basis or get up-front payment for services.
  
• Take the order or the job and add it to their bill—and risk having their cash flow problem become yours.
     

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