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Getting Behind on Your Collections

Tina Samuels

December 04, 2013

The central goal or idea behind a small business is to generate money.

As a part of generating money, you are required to collect payments from your customers. However, some people get behind when it comes to collecting money.

As reports have shown, past due collections cost small businesses between $15,000 and $35,000 per year on average. Remember that this is the average costs, and past due payments can actually cost small businesses even more money.

Let's take a look at some of the dangers you can encounter by falling behind on collection payments.

Cover the Gaps

One of the first worries for small business owners has to do with filling the gaps between customer payments.

Customers who do not pay on time cost smaller businesses a lot of money. These small businesses must find a way to cover operating costs, and one of these ways involves getting a loan to cover the costs. These loans can come with high interest rates, thus costing the small business much more money.

Up to 64% of 850 small businesses surveyed in 2011 reported having unpaid invoices for time periods of up to 60 days.

All of these companies that were surveyed reported having less than $5 million dollars in yearly sales. Small businesses who must fill payment gaps with loans often suffer great financial losses.

Keep on Top of Payments with Set Criteria

It is important to remember that staying on top of customer payments from the start is the best way to prevent future financial problems.

Establish set criteria for customers to make their payments. Manageable payment plans should be implemented in the beginning of the business transaction. This provides a concise time table for customers to make their payments regularly.

In addition to payment plans there should be an agreement that payment is made within a certain amount of time. This agreement should be signed by both parties. Taking this step eliminates surprises for both you and your customers.

Payment Issues

There are additional financial dangers when small business owners face mounting payment issues.

The relationship between businesses and customers becomes strained when the customers receive repeated requests for payment. If they are not made aware ahead of time of payment expectations, chances are they will go to another business.

A trust element exists between long-term customers and businesses, and this trust can be broken if payment issues arise. Open communication and easy access to company policies is a great way to prevent these types of problems.

If you own a small business make sure you use tactful approaches to collecting unpaid debts from customers.

Use good business accounting software to alert you to problems early. This ensures a continuing working relationship with those that you provide your products to.

Make sure that you are flexible and understanding when coming to financial agreements. The more you are willing to work with customers, the more likely your small business will grow.

Take the necessary preventative steps to make sure your business does not fail due to poor payment policies. The costs of legal action and collection practices can set your small business back several years, and prevention is the best method to success.

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