Customers who settle their bills timeously are every small business owner’s dream. However, there are some instances when customers take longer to pay than agreed upon, leaving small business owners in a difficult position from a cash flow perspective.
What are the options for small business owners to collect monies owed to them?
Collecting on debts in a manner that preserves relationships with customers and mitigates future recurrences should be a small business owner’s first priority. There can be any number of explanations why the customer has not yet paid, and to assume the worst and treat customers in an abrupt, antagonistic fashion may do the small business owner more harm than good.
Small business owners should therefore try to establish why payment has not yet been made, and if there is anything they can do to make things easier for the customer to ensure that the full amount is recouped. This is not to say that small business owners should meekly allow their customers to walk all over them; but even when adopting a firm, no-nonsense approach, there is arguably still room for friendliness and humanity on the part of the small business owner.
If the friendly, one-on-one approach is unsuccessful, small business owners can issue the customer with a formal letter demanding payment. This can be drafted in-house or on the business’ behalf by attorneys to enforce upon the customer the gravity of the situation. A letter signals the small business owner’s willingness to take more serious steps, but the small business owner is not obliged to do so if the customer pays the amount owed or an amicable solution is reached.
A letter of demand can be followed up by the intervention of a mediator engaged by the small business owner to server as an objective third party to hear both sides and arrive at a mutually acceptable solution. A mediator is useful when significant amounts of money are owed and the small business owner is intent on continuing to do business with the customer after the situation has been resolved.
The next step would then be to engage attorneys or a debt collection agency to actively pursue collection of the debt. At this stage, the small business owner’s focus will be on recovering what is owed to them and there is no longer a concern for the impact on the customer relationship. Debt collection agencies typically charge a commission on what is successfully recovered, whilst attorneys charge a fee for work done, regardless of what is recovered.
Debt collection can be a simple and straightforward, or protracted and unpleasant. Small business owners should do what they can to be civil and contain costs as far as possible.
Post By: Fadzai Munyaradzi for Simplybiz