Dealing with collections is probably the least popular part of running a business and also the part you have had the least training for.

Often, everything goes very well with a client until the time comes to be paid...

How do you ask for the money? If, after 30 days, or whenever you agreed to be paid, they still owe you money, your client is not such a good bet. But now is not the time for YOU to be embarrassed. Unless you are less than certain that your services were worth what was agreed, you should be able to ask for money confidently.

Never be embarrassed to ask for money that is owed to you!

The key to effective collections is confidence. If you are confident that you provided value for what you billed, you can ask for payment with a clear conscience.

Many people have an aversion to discussing money: almost as though they are running their business for the love of it. That is the definition of a hobby. To be a business, you must at least try to profit from your efforts (Just ask the IRS!). Collecting money that you have earned is a part of business. Nonpayment is not a personal sleight, and neither is collecting it.

 Avoid collections from the start

Collections are time-consuming, rarely generate new business and can in fact become very costly. Avoiding the problem altogether is the key - Revise your sales strategy!

At your initial meeting you will try to determine that your client needs. Make sure your requirements are understood just as clearly – and that all of the bargaining is completed.

Don't begin work on any project that has been poorly defined, and for which all the payment details have not been discussed.

Payment on delivery is an excellent way to avoid receivables and collections.

Some businesses are better suited to this method than others -  there needs to be tangible evidence of the work you have done and a definite time when the service is complete or the product is handed over.  (Consider billing separately for services and for products) 

If you expect “payment on delivery” terms, make sure your client understands from the beginning, or you may be working for nothing.

When you let your client know that your job  (or a part of it) has been completed, be sure to have an invoice drawn up and let them know the exact amount you expect them to pay.

Before you meet to hand over your work, e-mail or fax an invoice. You can discuss it if you need to but no-one will be surprised when you meet. This slightly bolder approach avoids the  “ . . . . I wasn't sure how much to have the check made up for." excuses! (As a side note – clients who only write checks on a certain day of the week should not expect to receive your products on other days unless you agree to it)

If you deal regularly with clients who love to negotiate everything - negotiate before the work begins.

Never try to negotiate payments after work is started. (Be prepared - your final price must be acceptable to you to ensure thorough, professional efforts on your part.) 

If payment on delivery is unacceptable, any other terms should be agreed to in writing.

Keep very good records. A signed contract is best, but written details of actions you have taken are always more reliable than your memory, in the event of problems down the road.

Don't let other people tell you how to run your business, especially how much to charge.

 If you do, be prepared for the consequences - if they decide what you're worth, they may as well decide when you should be paid.

Make sure that both sides are clear about what is in the contract. Small print is wonderful for saving paper in printing, but a clear understanding of all the facts will avoid problems on both sides. If a deposit is taken, be especially clear about whether it is refundable, and how and when it will be applied.

Don't accept postdated checks: if the money is not available when the check is written, you cannot be sure it will be available in the future. 

When You HAVE to Collect

First, be absolutely sure that you are owed the amount that you are expecting to be paid. Be sure of both the exact amount and of the agreed payment date. Check all of your records. Then, consider the costs of collection. A small amount is probably worth chalking up to experience. Every business must decide what they consider to be a “small amount”. Close the loophole the next time and concentrate your efforts on debts worth collecting.

It is up to you what is worth collecting, but your efforts are intended to bring in money, not to make a point at all cost.  Never be petty - collecting the last $5, just to make a point, will be remembered a lot longer than your outstanding service.

It will be very hard to collect a debt you have ignored for three months because you felt uncomfortable about asking. Be methodical. Don't ask for money early from a currently paid up client when you have six overdue accounts that you have been too shy to approach for months.

Always take the actions toward collection that were in your contract

If you said you would go to an attorney, do it.  If you are not prepared to follow through, don't put it in your contract in the first place.

All collection methods have their advantages and disadvantages

Not all collection methods will be appropriate to every situation. But, any attempt will have a better chance of success than just hoping someone will pay you.

There are four basic methods:

Going to court is not a guarantee of being paid, (even if you win) but you will definitely have bills of your own to pay as a result.

No matter how much you love your work, what you do has real value - When your client first came to you they expected to have to pay. A firm and systematic approach to collecting money means that you can spend more time on new projects, and less time in tying up the loose ends of old ones.

Receivables are your funds that someone else has. Go get 'em!

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