Read Start Your Own Business Online
Authors: Inc The Staff of Entrepreneur Media
Start Your Own Business (50 page)
Your credit application should also specify what your credit terms are and the consequences of failing to meet them. Indicate what late fees you’ll charge, if any; that the customer is responsible for any attorney’s fees or collection costs incurred at any time, either during or prior to a lawsuit; and the venue where such a suit would be filed. Have your credit application form reviewed by an attorney specializing in creditors’ rights to make sure it is in line with your state’s regulations.
Once a potential customer has completed the application, how do you investigate the information? One way to verify the facts and assess the company’s credit history is to call credit-reporting agencies. Some companies’ payment histories will also be available through D&B. Because credit agencies’ reporting can be unreliable, however, it’s also a good idea to call others in the industry and try to determine the company’s payment record and reputation. Most industries have associations that trade credit information.
Also ask customers how much credit they think they will need. This will help you estimate the volume of credit and the potential risk to your business. Finally, simply use your intuition. If someone doesn’t look you straight in the eye, chances are they won’t let you see what’s in their wallet, either.
TIPTry this proactive approach to prompt a customer to pay faster: About 10 days before payment is due, call to ask if the customer received the bill. Make sure they are satisfied with the product; then politely ask, “Do you anticipate any problems paying your bill on time?”
Once you’ve set your credit policy, it’s important to stick to it and do your part to ensure prompt payment. The cornerstone of collecting accounts receivable on time is making sure invoices go out promptly and accurately. If you sell a product, get the invoice out to the customer at the same time the shipment goes out. If you’re in a service industry, track your billable hours daily or weekly, and bill as often as your contract or agreement with the client permits. The sooner the invoice is in the mail, the sooner you get paid.
To eliminate any possibility of confusion, your invoice should contain several key pieces of information. First, make sure you date it accurately and clearly state when payment is due, as well as any penalties for late payment. Also specify any discounts, such as discounts for payment in 15 days or for payment in cash.
Each invoice should give a clear and accurate description of the goods or services the customer received. Inventory code numbers may make sense to your computer system, but they don’t mean much to the customer unless they are accompanied by an item description.
It’s also important to use sequentially numbered invoices. This helps make things easier when you need to discuss a particular invoice with a customer and also makes it easier for your employees to keep track of invoices.
“The thing women
have got to learn is
that nobody gives you
power. You just
take it.”—ROSEANNE BARR
Before sending out an invoice, call the customer to ensure the price is correct, and check to make sure prices on invoices match those on purchase orders and/or contracts.
Know the industry norms when setting your payment schedules. While 30 days is the norm in most industries, in others, 45-or 60-day payment cycles are typical. Learn your customers’ payment practices, too. If they pay only once a month, for instance, make sure your invoice gets to them in plenty of time to hit that payment cycle. Also keep on top of industry trends and economic ups and downs that could affect customers’ ability to pay.
COLLECT CALLH
aving trouble collecting on a bill? Your Better Business Bureau (BBB) may be able to help. Many BBBs now assist with B2B disputes regarding payment as part of their dispute resolution service. BBBs do not operate as collection agencies, and there is no charge beyond standard membership dues.When the BBB gets involved, there can be three possible outcomes. First, the account may be paid; second, the BBB can serve as a forum for arbitration; third, if the company refuses to pay or arbitrate, the complaint is logged in the BBB’s files for three years.Most businesses find a call from the BBB a powerful motivator to pay up. If the debtor belongs to the BBB and refuses to pay, its membership could be revoked.To find out if the BBB in your area offers this service, visit
bbb.org
.
Promptness is key not only in sending out invoices, but also in following up. If payment is due in 30 days, don’t wait until the 60th day to call the customer. By the same token, however, don’t be overeager and call on the 31st day. Being too demanding can annoy customers, and this could result in you losing a valuable client. Knowledge of industry norms plus your customers’ payment cycles will guide you in striking a middle ground.
TIPTo make sure you get paid for any work performed, it’s a perfectly reasonable practice for a business that has out-of-pocket expenses to ask that the client make a deposit at least large enough to cover these expenses.
Constant communication trains customers to pay bills promptly and leads to an efficient, professional relationship between you and them. Usually, a polite telephone call to ask about a late payment will get the ball rolling, or at least tell you when you can expect payment. If any problems exist that need to be resolved before payment can be issued, your phone call will let you know what they are so you can start clearing them up. It could be something as simple as a missing packing slip or as major as a damaged shipment.
The first 15 to 20 seconds of the call are crucial. Make sure to project good body language over the phone. Be professional and firm, not wimpy. Use a pleasant voice that conveys authority, and respect the other person’s dignity. Remember the old saying “You catch more flies with honey than with vinegar”? It’s true.
What if payment still is not made after an initial phone call? Don’t let things slide. Statistics show that the longer a debt goes unpaid, the more difficult it will be to collect and the greater chance that it will remain unpaid forever. Most experts recommend making additional phone calls rather than sending a series of past-due notices or collection letters. Letters are easier to ignore, while phone calls tend to get better results.
If several phone calls fail to generate any response, a personal visit may be in order. Try to set up an appointment in advance. If this isn’t possible, leave a message stating what date and time you will visit. Make sure to bring all the proper documentation with you so you can prove exactly what is owed. At this point, you are unlikely to get full payment, so see if you can get the customer to commit to a payment plan. Make sure, however, that you put it in writing.
If the customer refuses to meet with you to discuss the issue or won’t commit to a payment plan, you may be facing a bad debt situation and need to take further action. There are two options: using the services of an attorney or employing a collection agency. Your lawyer can advise you on what is best to do.
If you decide to go with a collection agency, ask friends or business owners for referrals, or look in the Yellow Pages or online to find collectors who handle your type of claim. To make sure the agencies are reputable, contact the Better Business Bureau or the securities division of your secretary of state’s office. Since all collection companies must be bonded with the state, this office should have them on file.
For more information on collection agencies, you can also contact the Association of Credit and Collection Professionals (
acainternational.org
). Most reputable collection firms are members of this international organization.
acainternational.org
). Most reputable collection firms are members of this international organization.
e-FYIFor more information on preventing bad checks, visit
ckfraud.org
. The National Check Fraud Center offers tips for detecting counterfeit checks as well as a rundown of bad check laws for each state.
Many collection agencies take their fee as a cut of the collected money, so there is no upfront cost to you. Shop around to find an agency with a reasonable rate. Also compare the cost of using a collection agency to the cost of using your lawyer. You may be able to recover more of the money using one option or the other, depending on the total amount of the debt and the hourly rate or percentage the lawyer or agency charges.
Accepting ChecksBounced checks can cut heavily into a small business’s profits. Yet a business that doesn’t accept personal checks can’t expect to stay competitive. How can you keep bad checks out of your cash register? Here are some steps to establishing a check-acceptance policy that works.
•
Start with the basics.
Since laws regarding the information needed to cash checks vary greatly among states (and even within states), begin by contacting your local police department. They can familiarize you with the laws and regulations that govern checks in your state. Some police departments have seminars instructing businesses on how to set up proper check-cashing policies.While rules vary among states, there are some good general rules of thumb to follow. When accepting a check, always ask to see the customer’s driver’s license or similar identification card, preferably one that has a photograph. Check the customer’s physical characteristics against his identification. If you have reason to question his identity, ask the customer to write his signature on a separate piece of paper. Many people who pass bad checks have numerous false identifications and may forget which one they are using. Ask for the customer’s home and work telephone numbers so you can contact him in case the check bounces. Don’t cash payroll checks, checks for more than the amount of purchase or third-party checks.
•
Be observant.
Desktop-publishing software, laser printers and scanners have made it easier for people to alter, forge and duplicate checks. To avoid accepting a forged or counterfeit check, evaluate the document very carefully. Smudge marks on the check could indicate the check was rubbed with moist fingers when it was illegally made. Smooth edges on checks are another sign of a document that may be counterfeit; authentic checks are perforated either on the top or left side of the check. Smudged handwriting or signs that the handwriting has been erased are other warning signs that you might be dealing with an illegal check.
Other books
A Pretend Engagement by Jessica Steele
Just Grace Goes Green by Charise Mericle Harper
My Bonny Light Horseman by L.A. Meyer
Jamaica Kincaid by Annie John
El Palestino by Antonio Salas
Three Women in a Mirror by Eric-Emmanuel Schmitt, Alison Anderson
Thrice upon a Time by James P. Hogan
Annie's Stories by Cindy Thomson
Blackout by Jason Elam, Steve Yohn
The Kingdom of Light by Giulio Leoni
