As a business person, what would you rather do: sell goods from the shelf and not get paid for them, or not sell them at all? In theory the answer is easy, but in practice the issue becomes more complicated. You rarely know in advance when your customer is not going to pay you.
Here are some tips to improve the odds that you get paid by your customer where you provide goods or services on account:
- Consider providing an early payment discount, typically between 2% and 5% of the invoice amount for balances paid within ten days of sale.
- Establish a tracking system (a watch list) to identify changes in customer payment patterns. Signs include increasing balances without increasing purchases. Many computer billing systems show aged receivables at various intervals, including 30, 60, 90 and 120 days. Anything over 30 days should concern you; anything over 60 days is troubling; and anything over 90 days is probably doubtful. Make direct contact with your customer when you see the age of receivables creeping up. Do not allow the customer to go without contact after 60 days.
- Designate a single point person to monitor customer receivables so that no account “falls between the cracks.” Use electronic mail and telephone to follow up with slow paying customers.
- Discontinue open account sales to customers who are not current or change them to C.O.D. status.
- Set deadlines for payment and enforce them. If a slow paying customer does not pay by an established deadline, discontinue sales and consider litigation to recover unpaid balances.
The foregoing tips apply to commercial situations, and do not apply to consumer transactions. Consumer transactions are potentially subject to special rules for collecting outstanding balances.
Regardless of how careful you are, however, some accounts will turn into bad debts which can still be collected through the court system. Call us if you feel we can be of help in this area.