Small Business Collection Strategies That Work

Having problems collecting from your customers? When a customer doesn’t pay, the financial loss can play havoc with your ability to pay your business and personal bills. Here are ideas to deal with this problem.

Coping with ever-increasing costs is one thing–making sure you get all the money that’s due you from customers or clients is another. We’ve all been stiffed somewhere along the line, and when it’s money we’ve really been counting on, it’s hard to accept the financial loss. Here is how some business owners deal with this problem.

Set Established Payment Guidelines. To avoid problems in the first place, establish ground rules for how payment must be made and stick to them. On your order form, brochure or Web site, clearly spell out your terms of sale and payment options. Also have set guidelines for how you will handle checks and credit cards.

Get It in Writing. “Be sure your agreement/contract or memo of understanding states what the payment expectations are and the consequences for non-payment,” advises Donna Snow, “When you go over the contract with your client, be sure they initial the payment policy section. This way they can’t say, ‘you didn’t tell me’ or ‘I didn’t understand,’ and this can be used later if the event escalates to small claims.”

RELATED: Improving the Bottom Line

“I limit amounts due to me from new accounts by requiring monthly (or phased) payments for my contracted and writing services,” says Martha Oskvig. “Even if a project is on-going, this is prearranged as part of the contract agreement. It is part of my professionalism: if (after their legal counsel says the agreement is fine) they won’t sign it, I don’t work for them. I submit itemized bills on the month’s work (or regarding completion of the phase of a project). If payment is not received within seven days, I do no more work for them. To make this work, I must create phases of the work with an accountability aspect to which both of us can agree before the project is done. I specifically chart my time and progress on a daily basis for the grant-proposal writing and consultant work I do for different clients. Each billing includes a brief progress report, projections and recommendations.”

Send a Series of Reminders. “What has worked for me so far is just being nice, polite and persistent–calling on a regular basis and always asking nicely,” says consultant Judy Schramm. “Only customers you trust should have more than one outstanding invoice at a time.” adds designer Terrie Kralik. “And don’t tell them until after they’ve paid that they’ve now become a COD or credit card-only customer.”

When Leila Peltosaari,, needs to collect overdue accounts, she lets her husband make the call. “That is his strength,” she says, adding that she’s too sweet. However, with a large company like Baker & Taylor, who would pay eventually but might take months to do it, Leila found that sweetness worked just fine. “I called and explained that I was just a little guy trying to survive, so could they please help me by paying their bills on time. The woman who answered the phone said she would put a note in my file, and since then I have been paid promptly.”

 Evaluate the Situation, Present Options. “My strategy for deadbeats is to first evaluate the integrity of the client,” says copywriter Gary Maxwell, “This is not always easy to do but experience says to give the client the benefit of the doubt. If the client is overdue by a small margin (say a week) give them some time (again, the benefit of the doubt). But as the days turn into weeks and then months, I suggest starting with a friendly phone call or e-mail to follow up and let them know that payment is overdue. Next, I would send a registered letter. This has the effect of getting your point across in a weighty manner without your having to confront them verbally or in person. After all else fails, let them know that all other avenues have been exhausted and that you are either (1) turning the matter over to your lawyer or a collection agency, or (2) taking them to small claims court. Keep in mind that if you ever want to work with this client again in the future, you will use these collection methods wisely.”

RELATED: In House Commercial Collections

Be Persistent in Trying to Collect. “The hard part is sticking to your guns and demanding payment,” says Donna Snow. “Hard luck stories and our natural tendency to rescue others puts us in a quandary as to how to deal with non-payment. When selling a service, we tend to do the work first and bill later, which often leads to problems collecting. It’s hard for clients who don’t pay to conceptualize what it is you as a service provider are losing when they do not follow through with their end of the deal.”

Be Willing to Sue. “You have to be willing to sue, or even threaten suit, to show that you mean business,” says Jeff Zbar, “Often, as small business owners, we’re perceived as weak-willed and unwilling to go to the mat for what’s ours. Until we demand professional attention–whether that’s getting paid on time or being given a chance to compete with larger organizations–we’re always going to be relegated to second-class status. Sometimes a few well-chosen words in the business community can let others know the potential downside of working with a slow-paying customer. If they value their reputation, they may pay up to get you to shut up. For those who refuse to pay, keeping an attorney on hand to write the occasional letter can help.”

Know When to Quit. “If you can’t collect, don’t let it get to you,” advises Bernard Kamoroff, author of Small Time Operator. “Try to collect if you have the time and ambition to do so, but if not, just write it off to experience. Forget the money–it’s not worth the aggravation.”

An excerpt from  Homemade Money: Bringing in the Bucks!

© 2003 by Barbara Brabec. Barbara is the author of several home-business books and publisher of The Brabec Bulletin. Visit her Web site at

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