By Lois Kirkpatrick, Loudoun Economic Development
As an entrepreneur, you're excited about the product or service you've created. You're thrilled to have a growing number of customers. Money is coming in, but you haven't put a system in place to formally track who owes you how much, and by when. This is where a lot of small businesses get into trouble.
Without effective strategies in place to make sure your clients pay you on time, you could be setting yourself up for a cash flow problem. Your business could quickly go off track by having more money going out than coming in. You could be putting yourself in the position of having to spend your time chasing after customers who promise to pay, but never do.
In order to free up your time so you can focus on growing your business instead of on delinquent clients, use these nine tried-and-true strategies offered by business experts and successful entrepreneurs.
- If a project has a hefty price tag, run a credit check on the client before you start work. Equifax, Experian and Cortera all offer credit monitoring tools for small businesses. Checking out a client can cost less than $200, and save you lots of time, money and headaches.
- Put payment terms and conditions in writing every time, with every client. Do not make exceptions for friends or relatives. Consider stating up front the consequences for delinquent payments, and always follow through with whatever terms you set.
- Use a standard invoicing system. Always work off of an invoice and never from a note, email or verbal agreement.
- Get paid as much as possible before you do any work for a client. It's common practice in some industries to get paid 50 percent up front when the client signs the work order or contract, and the remaining 50 percent when you deliver the product or service.
- If at all possible, have a policy of only accepting credit card payments instead of checks.
- If you don't have an employee to handle accounts receivable, hire a virtual assistant to call clients when payments are due. Always have him or her follow up the calls in writing. VAs usually only charge $10 - $15 per hour.
- Turn up the heat on clients who are 30 days past due. For a small fee, companies like Dun & Bradstreet Small Business Solutions, Transworld Systems and I.C. Systems will make calls or send a series of letters to delinquent clients.
- Consider turning delinquent accounts over to a collection agency. Keep in mind that agencies usually keep 50 percent of whatever they collect for you.
- Depending on how much they owe, you can sue the client in small claims court for the amount owed.
You can avoid spending a lot of time and effort on collections by having the right policies and procedures in place up front. Understand that you deserve to get paid on time for giving customers products and services that benefit them. Put systems in place that will encourage clients to take your invoices seriously. This will help you avoid the cash-flow problems that derail so many startups, and instead of chasing delinquent customers, you'll be able to spend more time doing the work you love.
Content contributed by Lois Kirkpatrick, Loudoun SourceLink -- a proud affiliate ofU.S.SourceLink, America’s largest resource network for entrepreneurs