09/ 26/ 2007
by Shannon McRae
Tips for collecting money you're owed
Ken Honnig doesn't like to be a pest--he'd rather exterminate them. But when clients won't pay their bills, Honnig, the owner of Burlington, N.J.-based Expert Pest Control, has to bug them.
Most small-business owners don't enjoy accounts-receivable duties. Unanswered phone calls, awkward conversations or rude comments are sometimes part of the process. But since getting paid is a crucial part of doing business, having a debt-collection strategy pays when clients won't.
Fortunately for Honnig, only 2 percent of his clients have payment problems, he estimates. When he notices delinquent accounts, Honnig writes letters, calls or even mentions the unpaid bill when he visits the customer's house for monthly pest-control service. Stopping service for chronic late-payers is a risky move for his business, he says, because of New Jersey state laws. "We write a contract to do a monthly service," he says. "If they don't pay, and we cut them off, we're still obligated if they get infested with something."
If you face a stack of unpaid invoices, consider these tips for collecting what you're owed:
1. Screen potential customers. Avoid the problem up front by performing credit checks on all clients. The three nationwide credit-reporting companies--Equifax, Experian and TransUnion--provide business as well as personal credit reports. Some business owners worry that checking credit history will turn off a new customer, but it's an essential part of business that can save you a lot of trouble in the long run.
2. Write it down. Especially important for service-based businesses, be sure you provide customers with a written explanation of the scope of services, how extra costs are incurred, how often you bill and when payment is due. Don't get caught in a your-word-against-theirs disagreement if a client claims he didn't approve your work and, therefore, won't pay.
3. Be consistent. Send bills regularly and monitor money coming in. When clients don't pay promptly--usually within 10 to 30 days, or whatever you've agreed to--immediately follow up. Don't let unpaid bills linger and then demand payment months later.
4. Keep your cool. Though it's frustrating when a client won't pay, control your temper, says Beth Gaudio, senior executive counsel for the NFIB Legal Foundation. "It's important for business owners to understand there are many laws that restrict or prohibit aggressive collection tactics," Gaudio says. Laws vary by state, so contact your attorney, your state's attorney general or your state's consumer protection agency to determine if your state has enacted a fair debt collection law. "If you violate the law, you could end up paying the debtor in the form of attorneys' fees, costs and other penalties," she says.
Calm, Cool and Collected
To avoid legal trouble, the NFIB Legal Foundation's Beth Gaudio cautions against any of these actions when collecting unpaid bills:
- Calling or communicating with the debtor so frequently that it could be considered harassment.
- Threatening to use physical force to collect a debt.
- Using obscene or abusive language.
- Communicating with the debtor's employer or family members.
