If you run a small business, it’s almost certainly something you’ve experienced – the few clients who just wont pay up when the bill is sent. One of the more delicate aspects of running a business is dealing with those clients who consistently pay late, or seemingly try to get out of paying altogether.
Effective debt control is important for all small business owners to practice – after all, receiving payments late, especially from key clients, can impact the cashflow stability of your own company.
If this sounds familiar, check out the complete A to Z of effective debt control ideas and suggestions below.
- Effective debt control starts with selecting the right clients. While it’s difficult to be choosy, especially in a biting recession, you don’t want to end up with nightmare clients who end up costing you more than you make on them. So, consider vetting large new customers who will account for a large chunk of your overall revenues to ensure they are credit worthy. You can use services like Experian and Equifax to analyze just how credit worthy your new clients are.
- Ask for references – part of your new client vetting process should include obtaining references – positive references from a bank and another supplier that they deal with should provide the safeguard you need to go ahead and do business.
- Investigate how the customer treats other suppliers of your size. Unfortunately, some large companies have a sinister history of messing small suppliers about – this can include delaying payments owed – check the company policy on payment terms to suppliers to provide a clue as to how you might be treated.
- Create a contract for every new client you take on – particularly the ones who are seen as major customers. Be very specific within the contract as to the price as well as payment terms and times. A mistake that many small business owners make is in having a loose, verbal agreement with clients without written documentation that records the specifics of the service provided.
- Make a habit of sending invoices to your customers on time. When payment is not made, get on top of the situation immediately. As a small business owner, you’ll probably find that it’s a small core of “usual suspects” who consistently pay late. Be proactive when you see that a client is persistently not paying when they are obliged to. There are several steps you can take – first and foremost, talk to the client politely and explain the trouble it’s causing you. If this fails, for subsequent orders invite the client to (at least partly) pay in advance or suggest payment via Escrow.
- If after persistent reminders, your client is still not paying up, have a clear procedure in place to take action. This can include working with debt collection agencies to retrieve any monies owed – although this should ideally only be used as a measure of last resort.
- If you are going to provide an identical service/product at pre-determined time intervals consider setting up an automated payment via a payment processor such as Paypal.
These are really sound debt control tips to ensure that your percentage of bad debts remain low, and payments are made to your business on time, every time.