Collecting Money Without Alienating the Customer

"If you have been in any self-owned business or have managed a business the following collection principals are already clear to you. For those that wish to start a business consider this article which has been summarized for the purposes of your use. We did not originate these opinions but for the most part it is common sense and we agree."

Are you having trouble managing cash flow? Are your customers sometimes slow to pay, resulting in difficulty in your ability to pay your bills when due? Are you afraid of losing customers if you push them too hard for payment? If your answer to any of these questions is "Yes" then consider this discussion.

This is the most important matter to any business. Collecting money that is owed to you is the only way you can stay in business. Although it can be a delicate matter, there are methods that will not alienate the customer.

First, admit to yourself that you are entitled to be paid for your products or services. If the customer's employer didn't make payroll in a timely manner, you can be sure they would be upset. It is common for a provider to ask customers for full or partial payment at point of sale. The person who takes payments should always ask, “How do you wish to pay today: cash, check or credit card?” If credit is considered, then the boss or supervisor should be involved. Once you have rendered the service or released the article for sale, you no longer have much leverage with the customer. There is an interesting anecdote of several men rowing a boat. When the customer needs your services or product everyone is rowing together. After delivery of the product or service the rowers are all rowing differently or not rowing at all or listening. The point is that time changes attitudes, so early collection is always best. Have a plan and a time schedule.

Accepting credit-card payments is crucial for most businesses, so you may want to sign up for a merchant account with MasterCard or Visa. Encourage customers to use this option. You pay a small fee for the service, but it can be built into your invoice, and the cost pales in comparison to that of a collection agency or attorney. In NM you cannot pass the fee charged by the credit company to the customer - so you have to cover the additional cost into your raw product or service.

For some businesses, the customer wants to see the finished product before payment is rendered. This is especially true with services provided by building contractors. However, there are materials to be purchased and labor to be paid weekly. The prudent contractor will request an advance and periodic draws as the project advances, with balance upon completion. At least request enough money to cover materials and operating expenses. Remember that your negotiating "leverage" decreases the longer you wait. There are all kinds of escrow arrangements that can be made so you are comfortable that the money will be there when you are completed. Some customers are sure to take advantage of your lack of attention to this common principal.

In instances in which you extend terms, make sure your invoice arrives promptly and is clear and concise. It should itemize the charges in language that’s easy to understand. Clearly state that payment is due upon receipt, and include a self-addressed return envelope. It is extremely important to age your accounts receivables. Late fees can be enterpreted by the customer as permission to delay payment, which will not help your cash-flow problems - so make it clear that late payments are considered a default of your agreement. If you intend for a customer to pay interest, collection costs, and/or attorneys fees on past due accounts, you should have the agreement acknowledged in writing by the signature of the cutomer. Get as much information as you can up front - addresses, social security numbers, place of employment, spouse information, and the like. Your collection agency or attorney will be able to better collect for you if you have this information.

If you need to press your customer send a customized, personal letter, not a lifeless form letter. Everyone ignores a form letter. Remind the debtor of his or her original promise to pay, and ask for full and immediate payment. If there is no response, get on the telephone with the customer. Most businesses wait too long to call unfortunately - remember the analogy to the rowers. Collection experts say a phone call is 10 times more effective than writing or e-mailing, but everything depends on your business and your customers of course.

If you need a collection expert, look for somone who specializes in collection matters. Again, time is of the essence. The further the "boat" gets down the stream the less the rowers care about rowing!