By Diana Clement
MSN NZ Money writer
New small-business owners often can't contain their excitement at getting their first and subsequent customers.
But a few months down the track they come across a slight hitch: the customers are not paying. It happens to most small businesses eventually unless they're a retail shop or other business where customers pay upfront.
Some businesses and individuals make a habit of paying late or not paying at all. Sadly, not everyone is 100 percent honest.
A sale is no good unless you follow through and receive payment. Here are some tips to extract every cent you can from customers:
- Check out every customer. Before you do business with anyone, check the Companies Office records online. Have the directors been involved in failed businesses?
- Ask customers to fill in credit applications. Your lawyer can draft one or you could amend one of the many that can be downloaded online.
- Take personal guarantees. If you're extending credit that is, doing the work upfront before payment ask for a written personal guarantee. You could add this to your credit application and ensure you have the authority to credit check the individuals as well as the company.
- Get a deposit. It's a good idea to get a sizeable deposit upfront. Work out how much you'd be out of pocket if the customer didn't pay and match that to the deposit. Some orders can be sold elsewhere, others are customer-specific.
- Register a financing statement with the Personal Property Securities Register which protects your interest should the customer fail to pay.
- Send out invoices quickly and include finance terms.
- Offer discounts for fast payments but beware of customers wanting the discount anyway.
- Move fast if payment isn't forthcoming. The longer you leave a debt the more difficult it is to get payment especially if your customer is starting to go under.
- Offer payment terms if the customer is having trouble paying.
- Send a 14-day demand letter. You'll find some customers will steal from Peter to pay Paul that is, they only pay bills when forced to. You might need to threaten legal action when you send the demand.
- Take the client to court but beware of building up big legal bills for little gain.
- Follow up with debt collectors. It's relatively easy to get a debt collector on the job and some only charge if they're successful.
- Use factoring where you're advanced a certain percentage of the invoice immediately then the factoring company chases the invoice. Once paid, you get the full amount of the invoice minus the factoring company's fee.
- Don't give up! Keep up the pressure and get creative. Turning up in person sometimes works.
Finally, whatever you do, remain professional and polite. You'll never get money out of anyone if you lose your rag on a regular basis.