Handling Chronically Delinquent Clients: Tips For Small Business Owners

Unlike most clients that are sometimes late in payments for legitimate reasons, chronically delinquent clients habitually pay late, pay rarely, or in some cases, never pay at all.

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Serial late-payers are the bane of businesses of every size. Delinquent accounts, however, are a particularly serious problem for small businesses. Having enough habitually delinquent customers compromises a small business' cash flow. To make matters more difficult, small businesses rarely have the tools and expertise needed for collecting on delinquent debtors.

The following are some tips for small businesses dealing habitually late-paying customers.

Have a process in place

No matter how small a business is, it must develop and follow a clearly defined set of policies for late-paying customers. These procedures must include details such as payment deadlines, late fees, and frequency of payment reminders.

Note that there shouldn't be a one-size-fits-all approach to all late-paying customers. A customer who regularly pays on time but forgot to drop a check in the mail for the last bill is dealt with differently than a customer who has never paid on time.

Communicate well and often

Businesses must invoice their clients on time, and clients with a history of late payments must be contacted on the date the payment becomes overdue, preferably over the phone or face-to-face instead of through email or regular mail.

Business owners should calmly yet clearly inform a late-paying customer about the overdue bill, ask for his reasons for paying late, and ask him to commit to paying the amount owed at a date both parties agree upon.

Consider hiring a collections agency

If a client refuses to pay or ignores all attempts at communication and negotiation, and his or her account is past due by more than the acceptable amount of time, business should consider hiring a collections agency. Taking a client to a small claims court can be time-consuming and costly, whereas collections agencies take care of the legwork when it comes to chasing after late-paying customers.Collections agencies allow businesses to get on with more pressing matters while recovering delinquent debts.

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Collections agencies are typically paid either a percentage of the debt recovered or a standard amount of commission for certain types of debt. Others charge monthly rates, while others offer the same services for a flat fee.

Brennan and Clark offers customized account receivables support solutions that eliminate credit losses. To learn more, like this Facebook page.

Surviving Interruptions In Cash Flow

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Among the most important aspects of running a business is cash flow. Often, businesses rely heavily on cash flow to fund their operations. Any interruption in cash flow can gradually imperil a business' ability to stay afloat to cover costs.

Some events can cause a partial or general interruption of income, and being prepared for these developments and responding appropriately can help businesses resume the flow of revenue.

In some cases, such as natural disasters, income interruption is caused by the full incapacitation of a business' operations. Having the necessary preparations for the disaster can help businesses resume normalcy in operations and thus, restore cash flow in the shortest available time. Business owners should also maintain a close relationship with a bank to open up lines of credit. This would help cover most expenses while the business gets back on its feet.

Outside of disasters, the most common of all sources of cash flow interruptions is a poor credit policy. While it is unrealistic to expect all customers to pay on time every time, it is a sign of poor policy for credit to be extended to customers with questionable credit ratings. A poor understanding of the paperwork involved may also impede the business' ability to deliver invoices and track customer payments.

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Businesses should have a clear understanding of the process of invoicing and have a strategy in place to efficiently deal with late-paying or non-paying customers to prevent problems such as these from growing out of proportion.

Drawing from more than three decades of industry experience, Brennan & Clark assists businesses in enhancing their existing collections strategies in a way that suits their needs. For more on the importance of maintaining cash flow, visit this Facebook page.