GREAT 50 IDEA: Collect the Money People Owe You
If you can't find or afford a debt arbitrator, you'll just have to do it yourself. When I ask the people at my events if anyone owes them money, way too many hands go up. Unless you are a bank, you should not be financing your customers.
The key to collecting money from customers is to handle it diplomatically and not jeopardize a good business relationship. So, here are some tips:
First, determine exactly how much each customer owes you by reviewing every account. Next, contact the responsible person in writing—not via e-mail. You need to determine whether the client or company has temporarily fallen on hard times, or if they are in serious trouble and have no ability 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 in full. Ask for a partial payment as a sign of good faith.
If you hear that a customer is struggling, move quickly to collect something before all the assets vanish. Doing nothing is not an option. If there is no immediate response to your demand for payment, look into filing what is called a “writ of attachment” in court.
This step puts the matter before a judge, who can call a hearing to determine 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 equipment.
A good collections letter:
- Clearly states how much is owed your company.
- Spells out exactly what action you want them to take.
- Outlines your course of action if they don't pay right away.
If people owe you money, try offering to discount the amount owed—if they make a payment immediately. This incentive works well if the client or company has cash but is holding back.
This works best if you propose a significant discount—at least 10 percent. Put your offer in writing and set a deadline for response. Include a self-addressed, stamped envelope or overnight mailing slip. Even if just a handful of customers respond, it may bring in some cash.
To avoid deadbeat customers, don't extend credit. Accept credit cards instead (see Great Idea #51). If you really need to extend credit, pay for a credit check and call their bank. Require a deposit up front so you can sleep at night.
Most collection agencies work on a contingency basis, usually keeping about 35 percent of what they collect as payment for their services. Ask for a client list; call other clients for references. Visit the company offices to meet with the owner or manager. Don't base your decision solely on price. Paying a higher fee to work harder on your behalf may actually bring in more cash.