PaySimple currently has a “best late payments excuse” contest in progress, and the excuses that our small business customers have been sharing with us are hilarious. While my dog doesn’t go for bills in his food dish, it always seems there are some breeds out there that thrive on them. But unfortunately, late payments are increasingly becoming an issue for small businesses, which is no laughing matter.
According to Experian’s recent Business Benchmark Report, severely delinquent debt is on the rise for very small businesses (those with one to four employees). The shift in percentage of dollars considered severely delinquent went from 9.9% in June 2010 to 11.7% in June 2011. According to the report, all business sectors have shown an increase in slow payment in a year-over-year comparison. The largest increases in slow payment came from the Construction industry (17 %) and Insurance industry (15.7 %) when compared with June 2010.
What can you do if late payors are causing your small business to suffer?
First, it’s important to organize your receivables to figure out which ones to tackle first. Ranking outstanding payments by factors such as the amount due and your likelihood to collect is a quick way to build a priority list to focus your attention.
Next, get your contact information together. The more contact points you have, the better (home phone, work phone, cell phone, e-mail addresses, and mailing addresses). It’s also helpful to get as many related contacts as possible. For example, contacting the spouse in a household or contacting other colleagues in a business. The more people that are involved, the more your payment is likely to increase in importance. The “squeaky wheel” definitely applies when it comes to prioritizing who gets paid first.
Next, create and implement your follow-up strategy. It’s best to use a combination of methods for contacting your late payors – phone, email, text and mail for the main and alternative contacts. Figure out how often you want to follow-up and the message you want to send, and then get your communications going.
When you do speak with your late payor, it’s important not to get emotional. Many late payors are facing tough circumstances. However, unless you want to end up with tough circumstances yourself, you need to be compassionate, but not emotional. It’s good to ask probing questions so you can get a complete understanding of their situation. Why haven’t they paid? When will money be coming in? How do they prioritize what will get paid?
Figure out a plan to get some money in your pocket. Setting up a payment plan or even accepting a one-time partial payments are great steps in the right direction. Base the payment dates and amounts on their situation so the plan is likely to be successful. It’s also helpful to be able to offer as many payment types as possible. While they might not have cash, they might be able to set up a payment plan using a credit card.
When all else fails, it’s time to explore taking legal action. Sometimes a threatening letter on some official letterhead is enough. Otherwise you’ll need to weigh the cost and benefit of writing off the debt versus hiring some professional collections assistance.
To avoid getting into this predicament in the first place, check out our billing tips to encourage faster payments.