collecting overdue accounts

Discussion in 'Growing and Managing a Business' started by Mountain Man, Aug 17, 2010.

  1. Mountain Man

    Mountain Man
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    For those of you who allow credit, do you have any issues with unpaid accounts? How do you handle this? What is the best method of collecting? In the past I have only had to send out a reminder that their account is overdue and this has resulted in a payment soon after.
    I try to confirm an estimate before doing any work unless they are clear that they want the work done no matter what. Because I usually deal with reputable business people who want to keep a good reputation I haven't had many problems.
    I do have one regular customer who hasn't paid a fairly large bill (under $1000) in 75 days. I am not sure how to handle this, and have not been able to get in touch with him.
     
  2. LA Electrician

    LA Electrician
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    I would highly suggest contacting a collection agency who will place a lien under their credit.
     
  3. Shole

    Shole
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    I can only agree with that .
     
  4. businessamateur

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    Negative. You do not send a case to a collection agency right away.

    So their account is 45 days past due. Keep calling them and sending this customer letters demanding money. Make sure you are also adding financing charges on the amount that is overdue. How much you should be adding in financing charges depends on what your terms say.

    One thing you can do as many other companies is to give incentives to your customers to pay ahead of time. For example, companies do 1/10 net 30. Meaning if they pay within 10 days, they get 1% discount. If they do not, the rest is still due in 30 days.
     
  5. Fergal

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    The fact that you cannot contact them sounds quite worrying, have you tried visiting their premises?
     
  6. seanstevens

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    I've answered some of the questions on your other post, so will not duplicate here.

    For future reference get your T&Cs updated and make sure every client has a copy. Include something along the lines that non payment will result in a record being made with one of the credit agencies which could impact their future credit score.

    Get yourself over to Cortera, they have a credit community section where you can highlight non or late payers (it is good for the US, you will have to read up if it is available for Canada also).

    What kind of company is the one that is no paying? Inc, Corp, LLC etc? Drop me a PM with the name of the company if you like and I'll take a look to see if I can find anything on file about them.
     
  7. BizDoc

    BizDoc
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    Credit policies

    Every business is different. As Fergal noted, their failure to communicate with you is a bad omen. But what I see more troubling is that you're stating this like it's an individual problem when it's actually systemic: you have no credit policy.

    There are ways to handle delinquencies tactfully, and collection agencies can help in your overall plan. But you need a credit policy to best handle this. You must be proactive or you will get bitten in the a$$.

    In a recession credit dries up and a small businessperson needs to tighten lending as well. Make sure you extend credit only to the extent that you need to stay competitive. (Test your assumptions; entrepreneurs are notorious for thinking they have to accommodate customers in certain ways when often they don't.)

    This is an area my firm used to work on with clients extensively so I can tell you how we advised our clients. There's a lot but I can summarize a few of the ideas here that should help with this problem, and more importantly, prevent future problems:

    1. stop automatically granting terms to customers
    2. have any new client who desires terms fill out a credit application
    3. tighten all terms with customers. You can offer a discount for prompt payment as previously suggested and gradually wean customers off long terms.
    4. add appropriate legal language on your invoices, statements, and credit application detailing your credit policies including terms of delinquency
    5. incorporate a collection agency into your policy for serious delinquencies. This is another area of your business you need to outsource.

    No matter whether your client is 75 or 180 days late, if you haven't set the appropriate expectations and without warning you start collections, your client will grouse about being surprised. It won't be legitimate but you'll probably end up losing out somehow, whether he damages your reputation through word of mouth or refuses to pay or ties you up in paperwork. When you disclose your terms upfront, however, a client can't credibly claim surprise about your policies when you initiate collection proceedings.

    I explain how to implement onerous policies on my site at bizmd.blogspot.com (soon to be BizMD.info). There are two articles on the site I'd recommend you read: http://bizmd.blogspot.com/2010/07/train-your-customers.html that explains the gist of gradually nudging a customer to accept a new policy. Also, http://bizmd.blogspot.com/2010/07/painlessly-raise-prices.html will help you change a policy quickly without grousing.

    Hope this helps.

    Cheers!
     
  8. Mountain Man

    Mountain Man
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    Thank you for your advice. I have been reluctant to contact a collections agent since this has been a good customer of mine for quite some time. I still believe there is a reasonable explanation and have only started calling this week.
    The one positive thing this has done has shown me that I need to have a much clearer policy regarding outstanding accounts. I am used to simply sending out a bill and receiving a check.
     
  9. ProfitClinic

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    I implement what I call a "shared risk" policy with my professional consulting clients: On acceptance of my proposal, which spells out all policies and procedures, including contingencies like failure to pay, plus an agreed completion schedule, they must give me a written letter of agreement... plus a 50% deposit and written acceptance of the completion schedule, which also sets out progress payments.

    Professional services on projects of any kind can be like hiring a cab: the fare covers initial flagfall, distance covered, plus time if you require the cab to wait idly for you to stop anywhere along the route. Too often, a project can be stalled for weeks or even months while someone on the client's end delays making a decision for any reason.

    My pricing system requires progress payments to be made on the basis of the projected completion schedule. 50% up front, then monthly progress payments, regardless of actual progress if the client delays it, then the balance on completion. Delivery is made as soon as the final payment is received, and not until then.

    I also stipulate that I will accept no liability for third-party fees, costs or charges, and I will not finance the client's business. I charge a fee for service to co-ordinate any third party involvements, but the client places all orders and pays all invoices.

    As always in life, an ounce of prevention is worth a ton of cure (except in advertising, where it's expressed "and ounce of bullsh*t is worth a ton of cure"), and that's why I adopted this approach.

    Of course, this doesn't suit all business types. But it certainly works for mine. :D

    John
     
    #9 ProfitClinic, Aug 19, 2010
    Last edited: Aug 19, 2010
  10. Mountain Man

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    Good News update.
    It turns out the owner gave the invoice to his accountant to pay, which he never did (or lost it). They claim they were just busy, I am a little bothered that his wife never returned any of my phone calls. However He did call me up, paid me in cash and gave me a $100 gift certificate to his food establishment.
    Although this has been nothing more than poor accounting and bad communication it did lead me to add a line saying "interest on over due accounts" I am also looking into a clause that says (paraphrased) "all equipment belongs to us until paid in full". I am not sure of the exact wording yet.
     
  11. Fergal

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    Glad to hear that it all worked out for you Mountain Man. It sounds like you are looking for a retention of title clause.
     
  12. ProfitClinic

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    Mountain Man,

    I've always used this clause on invoices:

    Title in all goods supplied is retained by (my business) until settlement is made in full.

    Under Australian law, this means that I can reclaim the goods, especially if the buyer becomes insolvent or goes into administration or liquidation. Even if they dispose of the goods, I can still reclaim them from whomever received them.

    John
     
  13. seanstevens

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    If you are going to add a ROT clause then get it checked out before you do it. Every country has different clauses and not all of them are enforceable elsewhere. In the states some of the states vary very slightly, so best to get it done properly to avoid the risk of thinking it will work when it won't.

    Also in most clauses you will need a way of identifying your goods, say a serial number or such. This cuts down on the time it could take to get goods back. Especially if those serial numbers are also listed on the invoices.
     

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