New York Life Insurance Small Business

What To Do When You're Having Trouble Getting Paid

When times get tough, it's the small business owner who feels it first and feels it hard in the form of late pay, slow pay, no pay.

Well, guess what? The tough times are here. Personal bankruptcies hit an all-time record in the second quarter of 2001, jumping almost 25% over a year ago.1 And small business owners are already taking it on the chin. Business Week Online reports that bill paying slowdowns have become widespread, with customers routinely starting to stretch payments out 30, 60, and 90 days.2

Collecting overdue bills can be ticklish in the best of times. Today, making sure that check is in the mail can mean the difference between staying in business or going under.

Here are some tips that will help make sure that you get the money you're owed:

  1. Have a credit policy in place. Then don't just give a copy to each customer, advises Len Sklar, collection consultant, founder of Sklar Seminars and author of the book, The Check's Not in the Mail (Baroque Publishing). Be sure to discuss it with them as well. "This can be hard, especially when you sit down with a long-standing customer. However, it is the single best way to reduce late payments. Still, only 5% of companies have a policy in writing," Sklar told New York in an exclusive interview."3
  2. Do not ignore overdue bills. "Most small businesses have a fear of offending customers," says Sklar, "even those that do not pay them." However, the longer a bill goes past due, the less collectible it becomes. According to one survey, you will lose 10 % of receivables out more than 60 days; 67 % after six months and up to 78 % after a year. Plan action as soon as it runs 30 days.
  3. Rebill promptly, as soon as the first bill is due (and don't be afraid to request payments in full within 15 days rather than the traditional 30). This can very often be a copy of the original bill stamped with the words: Second Notice. Make the invoice as impersonal and businesslike as possible ...a routine reminder.
  4. Pick up the phone and call once a bill is overdue more than a month. "A phone call is 10 times more effective than a letter," stresses Sklar. "Be more willing to get on the phone." This can be difficult, he admits. Most business owners are reluctant to confront customers about money owed. "They will keep putting it off, until months have gone by," says Sklar. Then the bill may be almost impossible to collect.
  5. "Never apologize when you call or write," says Sklar. Remember, it is your money that is owed you. Simply ask the customer to write a check today for the full amount owed.
  6. Be friendly. There is never a reason to get into an argument, even if the customer becomes hostile. Instead, listen to what the customer is saying, and be sympathetic. Backing that person into a corner will rarely get you paid. Odds are that the customer may also be having trouble getting money from his or her customers. So, your goal is to get put on the top of the list, not the bottom.
  7. Ask for the full amount, explains Sklar, not just a payment. If a customer owes you $1,000 and you ask for part of it, that's the most you will get this time. Ask for the full $1,000. If the customer says you can expect at least some of the money, insist on an exact amount and an exact date when you can expect the check. Avoid vagueness.
  8. Never negotiate amount...just terms, if it looks like your customer will have a problem paying. But don't make this offer right away. It's a last resort. And insist that the first payment go in the mail today. (For instance, if a customer cannot meet a $600 bill, you might stretch it out over three long as the first payment of $200 arrives this week.)
  9. Take them to small claims if you keep getting stonewalled or feel as if you're being strung along. In 30% of cases, says Sklar, debtors pay up before they go to court. Reminder: Stop worrying about offending people who aren't afraid of offending you over money they owe you!
  10. Contact a pre-collection letter service, or find a new attorney (one that is fresh out of law school and not all that expensive yet, says Sklar) who, for a small fee, will send out letters to deadbeats. It is amazing, says Sklar, how an attorney's letterhead can often get results.

1 "Bankruptcies Rise to Record Numbers," Reuters News Service, August 24, 2001 (web site: 20010824/bs/financial_bankruptcies_dc_3.html)
2 "Small Business -- How To Deal With Deadbeats," Business Week Online, August 28, 2001. (web site: ttw4dg2py7lohx_yffq2hw.html.)
3 Much of the information in this article was obtained in an exclusive interview with Len Sklar (September 4, 2001). For additional ideas, visit

When should you go to collection? Since you generally only get a small amount of the amount owed, do this only when you are convinced that payment by any other means is a dead issue. Keep in mind that, it is sometimes best simply to write off a bad debt, says Sklar, especially one that looks like there is little hope of getting your money.

Finally, stresses Sklar, the best way to solve a collection problem is to avoid it from the start. When possible, insist on credit applications from customers you plan to work with regularly. That's because no business is better than bad business.

The above advice won't guarantee that your collection problems are over. However, it should help speed payments and that will keep your cash flow flowing during these challenging times. Good luck.

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What To Do When You're Having Trouble Getting Paid

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