In good economic times, late-paying clients are one of the headaches of doing business. But during a downturn, when sales slow, delinquent accounts can quickly turn into cash-flow killers. The challenge is to collect without alienating customers.
The first step to effective collections is prevention. Ask all clients to sign a contract that spells out payment terms and obligations. If deadlines aren't met, renegotiate. Allow clients to pay in installments, or create incentives for people to pay promptly. Meeker, for example, often gives a 5% break on the third and final installment if payments arrive on time.
If you're still having no luck, take your complaints higher up the chain of command. "Go to the account manager or the CFO," says Theodore M. Dunn, a Mahwah (N.J.) management consultant. Threaten to charge interest on overdue invoices, or have your lawyer draft a letter. (Keep a written account of all verbal communications, too, in case you do end up in court.)
The last resort is a collection agency or lawsuit. Attorneys and bill collectors work on a contingency basis--usually 20% to 50% of the amount they collect, depending on how much money is outstanding and how difficult it will be to get it. Don't count on keeping customers that you've turned over to collections. But you don't want them anyway. Sometimes, the cost of doing business is just too high. By Karen E. Klein