In small business dealings, owners usually have a tendency to form relationships with their customers and clients. However, there will always be time when a nice client refuses to pay. Whether due to the economy or poor management of their cash, you’re stuck with an unpaid bill and a growing and aging accounts receivable list. What do you do when accounts are seriously past-due?
Have Written Procedures
First, you should have a written collection procedure for all stages of collecting accounts receivable, starting with the first step of sending an invoice. Your procedure should entail every action you will take until either the account is paid in full or sent to a collection agency.
Send Written Notices
When accounts are past due, you need to send written reminders to the customer to put them on notice. A past due reminder should be sent at 30, 60, and 90 days. During that time, you should also attempt to contact the customer via phone to find out how arrangements can be made. There is no reason that a bill should be unpaid by 90 days. If that’s the case, it’s time to take more drastic action.
If you have a customer who has an unpaid bill that is 90 days past due, you should at that point freeze their account. It is frightening how many small business owners continue to do business with a deadbeat customer just to continue the relationship. Remember, it’s not personal; it’s just business. Make sure that you do not deliver any further products or services to the customer until their bill is paid.
Send a Pre-Collection Notice
After 90 days, it is time to start getting a past-due bill ready for a collection agency. You should have a collection agency with whom you work and can send all your aging accounts. By this time, you can have the agency send a pre-collection notice that tells the “debtor” that they have one last chance to pay you in full or the account will be turned over to them, along with additional costs.
Send to Collections
If there is no response to the pre-collection letter, then it’s time to hand the account over to the collection agency by the 120 day mark. At this point, it is very unlikely that the bill will ever be paid. Be sure you choose an agency that does not charge a fee upfront. Instead, a typical agreement will be to split whatever the agency actually collects.
Your accounts receivables are your money. Do what must be done to collect the money owed to you. Remember, it’s just good business practice.