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How to collect money you're owed

Q: Your recent article about managing one’s cash flow emphasized the importance of converting accounts receivables (uncollected money owed to you) into cash in the bank. Can you offer more suggestions how to speed up the collection process without aggravating and risking the loss of the customer?

A: The process of collecting money, while a delicate subject, can be handled in a variety of ways. You must first come to grips with the fact that you are entitled to be paid for your services. It is quite common these days for the provider to ask the customer for full or partial payment at the point of sale. This is the absolute best way to handle the situation. If the customer is disciplined to pay at point of sale, you have eliminated your collection problem.

Remember, once you have rendered the service or released the article for sale, you no longer have leverage with the customer.

Accepting credit card payments also can help, so you may want to sign up for a merchant account with Mastercard or Visa. Be sure to encourage customers to use this option. You do pay a small fee for the service, but it can be built into your invoice, and the cost pales in comparison to those of a collection agency.

Now, there are some instances where the customer wants to see the finished product before payment is rendered. This is especially true with services provided by building contractors. However, there are materials to be purchased and labor to be paid for on a weekly basis. The wise contractor will request a deposit and periodic draws as the project advances, with the balance due at completion.

In those instances where it is necessary to extend credit terms, make sure that your invoice arrives promptly and is clear and concise. It should itemize the charges, indicating how the check should be made payable. Be sure to state that payment is due upon receipt, and include a self-addressed return envelope.

It is extremely important to age your accounts receivables (outstanding monies owed to you 0-30 days, 31-60 days, more than 60 days). Focus first on the largest amounts due, followed by the over 60-day accounts, then work backward. Small business accounting programs such as QuickBooks can easily create invoices and age your accounts receivables.

Finally, if you feel the need to press the customer for payment, send a customized, personal note, not a lifeless form letter. Remind the client of their original promise to pay and ask for full and immediate payment. If no response, by all means get on the telephone. Most businesses wait too long to call.

Gray Poehler is a volunteer with the Naples Chapter of SCORE.

A SCORE counselor since 2005, Gray Poehler owned and operated an independent insurance agency with 20 employees and two locations. He has earned the Certified Insurance Counselor designation and is familiar with both personal and commercial property and casualty insurance. Areas of expertise include: Business Finance and Accounting; Business Strategy and Planning; Business Operations; Human Resources and Internal Communications; Sales, Marketing and Public Relations.

To learn more about management issues of small businesses, contact the SCORE office nearest you.