Attig Law Firm P.L.L.C

Over the past two months, I bet that 80% of the calls I get from small and micro business owners involve not getting paid.   All too often, small businesses are getting “stiffed” on the payment by a customer, another business or vendor, or a party with whom they contracted.

Here are some ideas that might help your small business avoid the problem of getting “stiffed”:

1. Have all contracts for services and all contracts for goods over $500 in writing.
2. Get your payment up-front.  If you collect all money owed before delivering a good/service, you will never have to worry about collecting past due amounts.
3. Sometimes the “up-front” option isn’t feasible - when it isn’t, try using credit-card authorizations and automatic bank account deductions (but be sure to have the proper legal documentation before you do this).
4. If you can’t do the first two options, have a clear policy with your customers regarding non-payment. Tell them when payment is due and what will happen if they don’t pay.
5. If a customer stops paying, stop providing the good/service immediately.  Those who want your good/service will pay right away; those who don’t will go away, and you won’t take any more loss.
6. Start calling for payment the first day payment is late.  Statistics have shown that you are likely to collect 75-100% of a debt that is less than 3 months old, 50-60% of a debt that is 3-6 months old, and less than 30% of debts that are over 6 months old.
7. Don’t have the person who does the sales also do the collections.  Often, the person who sold the product/service has an emotional interest in collecting the money, and is more likely to agree to extensions on payment, reductions in the amount owed, etc.
8. Offer incentives for early payment and incentives for late payment.  A common approach is to offer a 5% discount if a bill is paid within 10 days of invoice and a 10% penalty if it’s paid after that time.
9. If you are dealing with another business, always check out their credit history - do not do business with companies that have bad credit ratings.   Check out your clients and customers when you can, and if it makes sense for your business to do so.
10. Talk to an attorney before you decide to go to send out a demand letter, go to small claims court, file suit in civil court, or pass the account to a collection agency.  These options may not always be right for every business, and there may be important considerations for your particular business.

There are many other things you can do to reduce your overdue accounts and keep from getting  “stiffed” in the future.  Contact a small business attorney if you are having consistent problems with non-paying customers or vendors.