Don't let dust settle on past-due bills

In this economy, it's not unheard-of for unpaid invoices to lag 90 days or more.

Customers are tight on cash and paying bills much later.

For the small-business owner, this creates a cash flow challenge that can only be solved by tightening up the collection process and starting an open, yet often uncomfortable dialogue with late-paying customers, say experts.

"Too many companies are waiting much too long to pick up the phone," says Bob Leib, president/chief executive of LeibSolutions.com, an accounts-receivable management firm in Gibbsboro, N.J. "You're sending your customer a message that it's OK to pay late."

Bottom line is the longer you wait, the less of a chance you have of getting paid, he notes.

In this economy, you can't afford to be lax on collections.

Steve Free of The Bug Stops Here, an extermination company in Bohemia and Astoria, learned this the hard way.

About a year and a half ago, he started to tighten up collections after realizing he had "$50,000 on the street in unpaid invoices," says Free.

"For many years in the business, I didn't pay much attention to it," he says. But as the economy soured, he knew things had to change. So he hired a staffer to specifically handle receivables/collections, and is diligent about calling. They try working with customers on payment options, but if they haven't received any payment or communication after six months, they generally stop service and hand it over to a collection agency.

Outstanding invoices are now down to about $10,000, he notes. Here are some suggestions for getting paid.

1. Pick up the phone
Call early and often, says Leib, who suggests even reaching out to a customer before the invoice is due. Use it as a reason to check in and see how things are doing and add by the way, "Did you receive our January invoice?" says Leib.

If they're late in paying, call and see why and offer a realistic method for them to repay you, says Michelle Dunn, a Plymouth, N.H.-based collections expert and author of "The Guide to Getting Paid" (Wiley; $24.95).

For instance, you could offer for them to pay half this month and half next month, she says. Always try getting the bulk upfront.

If they agree to a payment plan and don't pay you, don't sit on it, says Dunn. Call and remind them that you didn't get the first payment, she suggests. You could advise them of your company policy (i.e., if somebody hasn't made a payment we may have to report it as a past-due payment on their credit report).

2. Try to work out a deal
If someone is still ordering, you can advise them that you have to hold their orders until you get paid, or alternatively, you can send the order to them cash-on-delivery with a certain amount added to satisfy their past-due balance, she says.

Try working with them before sending it to collections or taking legal action.

3. Weigh going leagal
"If you're going to go legal, the overwhelming majority of the time you're going to lose a customer," says Irwin Kirschenbaum, a partner with Kirschenbaum and Phillips Pc, a collections law firm in Levittown.

Sometimes you have no choice, says Kirschenbaum, noting that business owners have the option on claims up to $5,000 to go through commercial small claims without legal representation and pay a nominal fee. Click here to read about how to get started at  courts.state.ny.us/courts/nyc/smallclaims/pdfs/smallclaims.pdf.

But first try finding out what's the problem and try "to nurse them yourself," he says. Make sure you allow multiple forms of payment including credit cards, he notes.

And when you start a relationship, be clear about your billing policy, says Kirschenbaum.

If they're late, you can even offer to waive the interest or late fees as a payment incentive.

"It's all in your approach," says Kirschenbaum.

FAST FACT
An account that’s three months past due only has a 72.9 percent chance of recovery. That drops to 25.4 percent in month 12.

Source: Bob Leib of LeibSolutions.com