Nearly every small business owner has faced the problem of a customer or client not paying for services rendered or products delivered. It is always stressful to collect from these non-paying customers so it makes sense to try and eliminate the problem before it occurs.

It may be unfortunate but true that since most businesses are not cash-based, you will be forced to provide credit to be competitive. The most obvious safeguard, is to check a customer's credit BEFORE extending any credit. Don't simply take a list of "credit references" since a customer will not knowingly give a bad reference (but check the references anyway!). You need an independent check and that's what credit bureaus are for. For minimal cost, you can check a customers' credit rating from an independent

• Equifax (404) 885 8000

   

• CSC Credit Services (713) 878 4840

   

• Trans Union Credit Info (312) 258 1717

If your customer is a corporation, use Dun & Bradstreet services for checking past payment history. (1 800 234 3867). Don't stop here, however - also check with their bank and 2 or 3 of their customers.

If any of these checks is the least bit negative and you have any doubt of being paid, request payment prior to shipment or performance of services. Don't be shy about this. If you are questioned, simply indicate that your check of their credit was not satisfactory.

If, even after checking, you end up with an overdue invoice, try these steps (in order) to attempt to collect: Obviously the effort you spend should be related to the amount overdue!

1. Call and note that an invoice is overdue (by x days) and request payment by a certain date. Be sure you are talking to someone who can make a commitment. If your invoice noted that interest is charged for overdue payments be sure and remind the customer of this fact. Ask if another copy of the invoice is needed. Offer to work with the customer if they are having cash flow problems. For example, suggest partial payments over some period of time. Be polite!

    

2. FAX the original invoice and request payment.

    

3. Send a registered letter with a copy of the original invoice and again, request payment.

    

4. If the amount is large enough to warrant it, have your attorney write a letter on your behalf.

    

5. As an absolute last resort consider hiring a collection agency. Personally, I don't like using collection agencies. They are expensive and leave a bad taste with everyone. When selecting an agency be sure to ask for and check references; ensure they are members of the International Association of Commercial Collectors (IACC); and ensure you understand their rate structure and policies. They will take a bigger chunk than you might think!

Since we really want to prevent having to do any of this, lets consider a few things to help you get paid on time:

1. Make certain your invoice form is clearly laid out and easy to understand. Clearly display your payment terms (NET 30, etc) and include a short statement to the effect that late payment will be assessed a finance charge. No one ever seems to pay these charges but the statement can't hurt and might get you paid more quickly by some.

    

2. Make certain your invoices are correct and include any information required by the vendor. (If they request two copies, send them two copies!)

    

3. Make sure the invoice goes to the correct address! Frequently shipping and invoicing addresses are different. Also, if you don't use packing slips, include a copy of the invoice with the product shipment.

    

4. Call to confirm the invoice has been received.

    

5. If a vendor pays consistently late or you become concerned about their ability to pay, immediately suspend their credit terms and request advance payment for your product or services. Don't be concerned about losing a customer - you don't need them if they don't or won't pay.

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Robert Sullivan is the author of The Small Business Start-Up Guide, and United States Government - New Customer!. He frequently lectures on starting small businesses and appears on CNBC's "Minding Your Business" as a small business expert. His books may be ordered toll-free by calling 1 800 375 8439.

Robert also developed and maintains an extensive award-winning Internet website, "The Small Business Advisor," at http://www.isquare.com

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