You've worked non-stop to develop a client's web site. You put in blogs, eMail accounts, 10 pages with pictures, submitted it to all the search engines and got it at the top of Google under the keywords of their choice. Or you have put up the banners of an advertiser for 30 days. You sit up the account on a 30 day recurring fees. Then you wait for the payment, but nothing comes. What are you to do?
A Non-paying customer is one of the worst nightmares of a small business owner on the internet. Where every cent counts, a delayed payment (or none at all) could wreak havoc on your finances. Not only that, it eats up a lot of your time that could be spent instead in developing and growing your business.
What is the chance that you can handle the account receivable over the internet? You can contact a collection agency or a lawyer, do you know how expense that would be? Here are some steps you need to take to protect your business from slow or non-paying customers.
- Promptly send out bills.
The sooner it gets to the customer, the great the chance that you will receive the payment on time. Make sure that your bills includes all the relevant information of the purchase, including goods or services rendered, the price itemization and the dates purchased. Even include how the order was placed, whether by phone, fax, in person or on the Internet. The more details you include in the bill, the harder for the customer to dispute your charges. In the event that the customer disputes the amount owed, be sure to respond promptly, in writing. Otherwise, you can lose some rights under various credit laws. - Create a system that would allow you to monitor payments that are due daily.
Make sure that you are aware of any signs of problems such as slower payments, failure to return calls and bounced checks. If you use any software packages, customize them so as to alert you when payments are due. If you are not using any of these software, create these two spreadsheets using Excel:- Aging of your Accounts Receivables. The form should include:
- Customer Name
- Contact Person,
- Phone
- Total Amount
- Then check whether the account is 0-30 days due, 60-90 days due or over 90 days due.
- Compile all these information in a monthly Accounts Receivable Customer Statement form, which will include:
- Invoice Number
- Invoice Date
- Product or Service Description
- and the amount that is 0-30 days due, 60-90 days due or over 90 days due.
- Aging of your Accounts Receivables. The form should include:
- As soon as an account is included in your past due column, even if it is only 5 days, be sure to send follow-up reminders immediately.
Stamp a big "Past Due" on the cover of the notice. The longer a bill is not paid, the harder it is to collect payment. Be sure to have a set of demand letters drafted, with increasing level of firmness depending on the length of payment delay. - Visit or call the customer or accounts payable department.
Discuss with them the situation, ask for your money, and inquire what can be done to speed up payment. If the customer agrees to see you, chances are you will leave with at least an explanation or excuse as to their non-payment. Strive hard to leave the meeting with a check or written assurance that your bill will be paid. Insist on a firm timetable for the payment, and how the payment will be made--whether hand-deliverd cash, a check via a messenger service or whatever the case may be. - If the customer has financial problems, consider extending the time for payment.
but make sure that he signs a promissory not that will commit him or her to a periodic payment plan. You can suggest to customers experiencing a cash-flow shortage to charge the amount due to their credit cards. If you have a merchant account, getting customers to pay with their credit cards can go a long way in reducing your receivable problems and eliminating default risks. It will allow your customers to pay the balance in installments. - Once a customer becomes a problem, consider stopping any future sales and discontinue providing credit.
If you are dealing with a big company and their accounts payable department is turning a deaf ear to your demands for payment, call the buy at their Purchasing Department and tell them that any new sales to their company is stopped. You may get a more favorable reaction from the buyer than the accounts payable clerk. Even if a compromise is reached, tread carefully in providing the customer a new line of credit. A better approach is to demand cash payment on delivery on any new sale. - When dealing with a non-paying customer, be sure to conduct yourself in the most professional and courteous manner possible.
If you can't resolve the issue, leave or hang up the phone to avoid charges of harassment. You can be hit with a double jeopardy: the customer doesn't pay but sues you for harassment! Space the timing of your calls, maybe a day or two later. And of course, continue sending out your colle tion letters. - Know when to throw in the towel
e.g. customers declaring bankruptcy--and write off the debt. A small consolation: bad debts are tex deductible. If you want to get money the hard way, you have two options: get a lawyer, or hire a collection agency. Your customers may view the letter from your lawyer more seriously and be more inclined to pay. If this still doesn't work, you can get a collection agency to get your money for you, at a cost of about 15-50% of the amount collected.
DEMAND LETTERS
NSF LETTER
[Date][Addressee]
Dear [Name]:
Your check made payable to [name of company] in the amount of $ [dollar amount] has been returned to us for insufficient funds. The bank will not allow us to redeposit the check since it has already been presented on [number] occasions.
Would you please bring the amount of the check, plus the $ [dollar amount] fee for our service charge for returned checks, to the manager's office at:
[Company with full address and telephone number]
We must ask that this amount of $ [dollar amount] be paid by cash, certified check, or money order. If you have any questions, you can contact me at the above telephone number during office hours. Thank you.
Yours very truly,
REQUEST FOR PAYMENT
[Date][Addressee]
Dear [Name]:
It has come to our attention that you have exceeded your line of credit on your Account # [#]. In order to bring your balance down to the approved limit, it is requested that you remit the amount of $[dollar amount]. In the event that you are unable to comply with this request, we suggest that you visit the bank as soon as possible, in order to make other arrangements.
Yours very truly,
NOTICE OF OVERDUE ACCOUNT
[Date][Addressee]
Dear [Name]:
The payment due us on [date], in the amount of $ [dollar amount] has not been received.
Please give this matter your immediate attention and mail a check without further delay.
Yours very truly,
OVERDUE PAYMENT REMINDER
[Date][Addressee]
Dear [Name]:
Our records indicate that payment on your account is overdue in the amount of $ [dollar amount].
If the amount has already been paid, please disregard this notice. If you have not yet mailed your payment, please make out your check and place it in the enclosed envelope while this reminder is has your full attention.
Thank you in advance for your anticipated cooperation in this matter.
Yours very truly,
3 DAY OVERDUE PAYMENT REMINDER
[Date][Addressee]
Dear [Name]:
We feel that there must be a reason why you haven't answered any of our inquiries about your overdue account in the amount of $ [dollar amount].
If there is a problem regarding the enclosed bill, won't you please telephone us [telephone number], so that we can discuss the situation? Whatever the source of the problem is, we are in the dark until we hear from you.
If this has been an oversight, please use the enclosed envelope to mail us a check for the full amount today.
Thank you for your anticipated cooperation in the prompt handling of this matter.
Yours very truly,
4 DAY OVERDUE PAYMENT REMINDER
[Date][Addressee]
Dear [Name]:
Would you believe that we simply detest writing letters such as this one? We know that you certainly can't enjoy hearing from us under these circumstances.
Of course, we're referring to the fact that your account has fallen very far behind.
We want you to remain a customer of ours, to continue to buy our merchandise, and to know when we are planning an outstanding sale.
What do you say? Can we hear from you today?
We are so anxious that we even placed a stamp on the envelope for your remittance.
If you are unable to send us the payment, please give us a call at [telephone number]. Thank you.
Very truly yours,
5 DAY DEMAND FOR PAYMENT
[Date][Addressee]
Dear [Name]:
Our accounting department has turned your past due account over to this department. We hope that we can persuade you to bring your account current before your file is forwarded to our legal department.
When our firm extends credit to an individual, such as you, it bases its decision on that applicant's previous credit history and ability to pay. When you requested credit from us, you met all of these criteria. Today, however, your account has reached the critical stage.
You can avoid any additional costs if you mail your check in the amount of $[amount] immediately. We must hear from you within five days.
Very truly yours,
5 DAY OVERDUE PAYMENT REMINDER - NOTICE OF CREDIT HOLD
[Date][Addressee]
Dear [Name]:
It is because we do not want you to experience unnecessary embarrassment, that we are writing this letter to you.
As we have reminded you, your account is past due. We are sorry to inform you that if you were to present your charge card at our store today, our sales personnel could not accept the charge without an okay from the credit department. This would necessitate your going to the credit department to discuss the status of your bill before the charge would be approved.
You have been too good of a customer in the past to have to go through this procedure, but unless we receive your payment, we have no other alternative, due to our company policy.
We have enclosed a self-addressed envelope for your convenience and are requesting that you please mail us your payment today. Thank you for your anticipated cooperation.
Very truly yours,
10 DAY NOTICE BEFORE COLLECTIONS
[Date][Addressee]
Dear [Name]:
I have written to you several times over the past three months requesting an explanation on why you have failed to bring your account current with us.
By ignoring these requests, you are damaging the excellent credit record you had previously maintained with our company. In addition, you are incurring additional expense to yourself and to us.
Unless I hear from you within ten days, I will have no other choice but to turn your account over for collection. I am sorry that we must take such drastic action but I am afraid you leave us no alternative. You can preserve your credit rating by remitting your check today for the amount stated above.
Yours very truly,
FINAL DEMAND FOR PAYMENT ON DELINQUENT ACCOUNT
[Date][Addressee]
Dear [Name]:
Your account has been referred to me with instructions that I make final demand for payment of this debt. Inasmuch as the outstanding balance is sizable, I have outlined a payment plan for you as a method to retire the entire balance over the next [number] months if you are unable to forward the full amount at this time.
Amount Due $
Monthly Payment $
Due Date:This offer is being made to you as our expression of wanting to settle your account in an amicable manner. If we do not receive your first payment by the date indicated above, we will have no choice but to refer your account to a collection agency. We do not wish to take any action that might impair your credit rating. Therefore, we request that you give this matter your most immediate attention.
Yours very truly,
REFUSAL TO EXTEND TIME ON PAYMENT OF INVOICE
[Date][Addressee]
Dear [Name]:
Re: Invoice [#]
We regret to inform you that we are unable to extend any more time for payment of the above invoice.
We feel that we have been extremely patient, but if we do not receive payment in full on or before [date], we shall have no other choice but to turn this matter over to our attorney with instructions to use all available legal remedies to collect the amount owing.
Very truly yours,
FIRM LETTER ON PAST DUE ACCOUNTS
[Date][Addressee]
Dear [Name]:
On [date] we called your attention to your account balance in the amount of $ [dollar amount].
According to our records, we have not received either a reply to our letter nor a remittance to clear this account. We extended credit to you on your account in good faith and expected payment under our normal thirty-day terms, which we feel are most reasonable.
So that no further action on our part will be necessary, we shall expect a remittance by return mail or the courtesy of a reply to our letter as to why payment is being withheld.
Very truly yours,
WITHDRAWAL OF CREDIT ON PAST DUE ACCOUNT
[Date][Addressee]
Dear [Name]:
Your goodwill is extremely important to us.
That is why we have allowed you to continue to charge purchases to your account in spite of your outstanding balance.
We cannot, however, allow this to go on indefinitely, no matter how much we value our relationship. We must insist that you contact us and let us know what is happening, or send us your payment to clear up your outstanding balance, before we can fill another order on credit.
Please let us hear from you.
Very truly yours,
LETTER NOTICE OF LITIGATION
[Date][Addressee]
Dear [Name]:
All of our efforts to settle the above matter amicably have been unsuccessful. We have made numerous calls and, to date, have not had the courtesy of a call back. We have delayed legal proceedings up to now based on your assurances that we would be paid in full by [date]. I am enclosing copies of your letters stating that intention.
Please be advised that you have left us no alternative but to file suit immediately. We have attempted to be understanding of your cash flow problems, but our patience has now reached an end.
Your account is being turned over to our attorney. While I regret the necessity of this action I must advise you to govern yourself accordingly.
Very truly yours,
REPRIMAND
[Date][Addressee]
Dear [Name]:
[Name of customer], one of our customers, called our office today to inform us that they had been treated in an extremely discourteous manner by you.
They were referring to a telephone call, which took place on [date]. They claim that you stated that you were too busy to find the answer to their question at that time, and you seemed totally indifferent to his problem.
This is, of course, completely against our policy, which is to make every attempt to please and keep our customers content. Without customers, we have no company.
We would like you to find the source of the problem in this account, call [name] with the information he has requested, and offer an apology.
Very truly yours,
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