Are you tired of feeling like a collection agent, rather than an entrepreneur?
Let's face it: it stinks when your clients owe you money. Your cash flow suffers as does your relationship with your clients. These tips can help.
A long-time friend of mine, Ginny, is a small business owner. Last time we spoke, she asked me for some advice on cash flow problems she was experiencing in her business. In recent months, her largest client had accumulated a sizable, and growing, past due balance. All of her efforts to collect, had been in vain.
“What are the terms of your service agreement?” I asked. “I don’t have written agreements with my clients,” Ginny replied. “It was never a problem until now.”
Unfortunately, stories like this are common among small business owners. Valuable time is spent chasing down slow-pay or no-pay clients and dealing with the resulting cash flow headaches. So what can you do to start out and remain on “good terms” with your clients. These tips can help:
1. Create a service agreement or contract that you customize for each client. I recommend hiring an attorney to write the agreement or review the agreement that you’ve drafted.
The agreement should clearly state your billing and payment terms and describe how you handle past due accounts. If you significantly change your terms, be sure to prepare an updated contract or addendum and get it signed by your clients.
2. NEVER start work before getting a signed agreement along with the payment or deposit you require. If you choose to do so, you are leaving yourself exposed.
3. Stay current with your accounts receivable. Whether you use Quickbooks or work with a bookkeeper, client payments should be posted regularly. For most small business owners, posting payments on a weekly or bi-weekly basis works well.
4. Regularly review your accounting records to identify past due accounts. Be timely and consistent with the way you handle past due client accounts.Trying to collect money from clients can be uncomfortable. Don’t put it off. The larger the outstanding balance, the more you stand to lose if the balance remains uncollected.
5. Clients will share some compelling reasons for being unable to pay; some of which can tug at your heart strings. If you decide to extend preferential terms to a client, do so cautiously.
Consider putting a mutually agreed upon payment plan in place to ensure that the client’s due balance is being paid down; if only at a nominal rate.
6. If you have continued to provide service to a client whose account is past due, at some point you may need to stop service. Most small business owners are reluctant to do this because they don’t want to lose a client.
Ask yourself: is it realistic to think that you’ll be paid by this client in the near future? If not, cut your losses.
In short, as a small business owner, you have a legal right to get paid for services you provide. By following these tips, you can build a base of clients who are on-time payers, minimize bad debts, improve cash flow and virtually eliminate the need for uncomfortable “collection conversations” with your clients. As a business owner, who wouldn’t want to do that?