By Dean Kaplan, CEO and President, The Kaplan Group
A study by US Bank found that 82 percent of small businesses fail because of unpaid invoices. According to the same study, on average, businesses are owed $84,000 in unpaid bills. There’s a lot that your business could do with $84,000.
So, how do you avoid becoming a statistic?Taking these three easy steps before you begin working with a client will prevent payment problems.
- Do Your Research
Most businesses spend so much time trying to get a new client that they forget to make sure the client is worth having. We frequently see clients who are owed money because they failed to do even the most basic research on a new client and then performed services for a fraudulent company. Even the best collection agent can’t collect from a non-existent company.
A good credit application can help you weed out clients who won’t pay their bills. Even doing basic research such as calling to make sure you have the correct phone number or reviewing a website to make sure it’s professional will help avoid bad debt.
- Write Good Contracts
A good contract includes clear definitions of the responsibilities of both parties, as well as a timeline for any deliverables.
The contract should also spell out payment terms and late fees. Having late feesin your contract helps in two ways. First, it makes it more obvious if a client is having trouble paying a bill. Why would a client pay late if it will cost them more money? Late fees can also become a good negotiation tactic if you do send the account to collections. It is important to note that some states restrict the amount of late fees you can charge. Make sure to research this amount for both your state and, if necessary, the state in which your client is located.
In some situations,you may want to consider adding an acceleration clause into your contract. An acceleration clause allows you to pursue the full amount due as soon as they become delinquent on any invoice. The acceleration clause also gives a collection firm like ours negotiating leverage, since the client now owes for an entire year.
- Make It Easy to Get Paid
Very few people will pay you unless you bill them. Make sure your invoicing system is set up correctly and that you bill clients correctly and in a timely manner. If you wait 60 days to invoice a client you can’t be surprised if they wait 60 days to pay you. If you send an invoice with wrong information to a client, you can’t be surprised if they don’t pay you. Bad record keeping and sloppy invoicing confuses you and the client and makes it hard for you to get paid. We recommend politely letting clients know when they are a day late with payment. Letting people pay you late trains them that it’s OK to do so. Following up on overdue invoices quickly helps you determine if the late payment is an oversight or a problem.
There are so many ways to be paid today that it’s ridiculous to rely solely on a check in the mail. Clients should be able to pay you electronically, by credit card or by check. Having a secure payment portal on your website will help those who want to pay quickly and eliminate an excuse from those who are trying to stall. The processing fee you may have to pay for electronic or credit card payments is usually minimal compared to the trouble you’ll go through trying to collect on a bill.
Dean Kaplan is president of The Kaplan Group, a commercial collection agency specializing in large claims and international transactions. He is an expert in the technology industry and has 35 years of manufacturing, international business leadership and customer service experience. Today, he provides business planning, training and consultation to a variety of global companies.