Collecting money from people is tough enough in good times.
It's even tougher in tough times. But collection experts say it's possible to keep your cash flowing if you follow a few simple suggestions.
Most small-business owners create collection problems by not being clear about how and when they expect to be paid. If you don't tell customers or clients that payment is due upon receipt or due in 15 days, most will assume they can pay in 30 days -- or more.
"We all need to be more effective in communicating about money," said Leonard Sklar, president of the Sklar Resource Group in Hillsborough, Calif. Mr. Sklar, author of "The Check is NOT in the Mail," provides temporary collection professionals to businesses across the country.
He and other collection experts say too many small-business owners wait too long to contact potential deadbeats. The secret to successful collecting is to call as soon as the payment is a day or two late. you can collect a huge chunk of the money owed," Mr. Sklar said. "At six months, the chances are much less."
Another option is to ask your clients or customers to pay a portion of the bill up front, before you begin the work or ship the product. This is becoming a much more common practice among small-business owners and service providers. "The problem is many business owners are desperate for business, and too many are fearful they'll lose the client," said Bonnie Barnett, a Glendale collection consultant.
She said many business owners have trouble asking for money because they consider many of their customers friends. This is exactly why you should have a standard credit-rating procedure and use it for everyone, whether or not you know them.
Ms. Barnett, who recently sold her share of a collection agency to her partner, said the collection industry, especially in California, is in a state of flux. On June 30, the state disbanded the Bureau of Collection and Investigative Services, leaving collection agencies unregulated. The bureau had provided auditors, required collection agencies to set up trust accounts and monitored the way collection agencies treated their clients. Consumers still are protected against collection-agency abuses by state and federal laws.
While industry officials scramble to work out a regulatory process with state officials and legislators, it's more important than ever to find out as much as you can before turning over your bad accounts to a collection agency.
If numerous letters and phone calls to debtors prove fruitless, it may be time to turn the accounts over to an experienced agency. But don't be surprised if the some agencies you call respond coolly. Many collection agencies prefer to work with big, high-volume clients such as hospitals, department stores and banks. Some, however, set up special divisions to handle small-business accounts and will be eager to help.
Collection agencies work on a contingency basis, usually keeping about 35 percent of what they collect as payment for their services.
Ms. Barnett and others offer these tips for finding the right agency:
1. Ask for a client list and call clients for references.
2. Visit the company offices to check out the operation.
3. Meet with someone other than the outside salesperson. Try to meet the owner or manager.
4. Don't base your decision primarily on price because paying an agency a higher percentage to work harder on your behalf may actually bring in more cash.
"The sooner you start collecting, the more you'll collect," said Chuck Piola, executive vice president of NCO Financial Systems Inc. in Blue Bell, Pa. "In tough times, when people have only so much disposable income, the company that asks them first and is persistent is the one they will pay." NCO, a national collection agency, is collecting receivables for a variety of small businesses, including office-supply companies, appliance stores, auto garages, hardware stores, law practices and dry cleaners.
People have a difficult time asking for money because no one teaches us how to talk about money, said Chellie Campbell, owner of Cameren Diversified Management in Pacific Palisades, Calif.
Ms. Campbell advises business owners to discuss financial arrangements up front and in great detail before closing any deal.
"Say, 'This is the price, and these are the terms,' then ask, 'Do you have a problem with this?' " she said.
In addition to providing bookkeeping and financial management services, Ms. Campbell teaches a popular Financial Stress Reduction Workshop. The fee for her eight-week course is $400. For information, write to her at 860 Via de la Paz, Suite B5, Pacific Palisades, Calif. 90272.
"The Check is NOT in the Mail," contains more practical ideas for granting credit and collecting money. The book is available for $21.90 (plus California sales tax) by writing to Sklar Resource Group, 744 Jacaranda Circle, Hillsborough, Calif. 94010.