''Hey, You Got My Money?''
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Estimate Software- Printing software that helps you find the hidden treasure in your business.

“Hey, You Got My Money?”

The last thing you need added to your business struggles are late or non-paying customers. Learn how to get your money

By Johnny R. Duncan

Getting paid can be a nightmare for any business, but dealing with accounts receivable can be particularly harsh for sole proprietors. Focusing on collections means losing out on billable hours. There are various ways to deal with collection problems, ranging from preventive action to initiating a lawsuit. However, if you have experienced delays in payment or have had some bills that could not be collected, then the following may help you.

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  • The Basics

    The general rule in a sales transaction is that payment is due upon delivery of the item being sold. While this rule may be subject to technical complications that are beyond the scope of this discussion, it basically means that upon delivery of merchandise to a customer, or completion of a project for the customer, the seller has the legal right to demand payment in full at that moment. This assumes that no arrangement has been made between the buyer and the seller allowing the purchaser to delay payment or make a series of payments over time.

    While payment upon delivery is common in retail transactions, it is unusual when selling on consignment or in transactions between manufacturers and distributors. In addition, the purchase of a rather expensive item may be subject to an installment-payment arrangement.

    In today’s world, we’ve become so callused to translate the "check is in the mail" into “the check is nowhere close to being sent. Unfortunately, dealing with bad debt is an issue that most businesses eventually face.

    1.) Do the homework.

    Rather than just giving up by writing off the debt, you may want to think about bringing in a collection agency. Collection agencies specialize in collecting payment from overdue accounts and can work in two ways. For larger debts, they will typically send letters and make phone calls to the delinquent account. People with smaller debts may get just a letter demanding the money.

    How do they do it? Choosing a collection agency requires a lot of careful consideration -- after all, this company will now be representing you to your customers. The first area to investigate is how the agency expects to collect debt. Before agreeing to any collection strategy, you must first judge whether it will be effective with your customer. You can do so by examining the letters that will be sent and any scripts that will be read during phone calls.

    Next, investigate the process of working with the service. Find out how information about delinquent accounts will be transferred to the agency. Learn when collected funds are forwarded and what reports are provided detailing the collection progress and success rates.

    Finally, find out how you can stop collections if you receive payment or credit to an account.

    Checking references

    It is wise to investigate the firm's reputation. You should check references and investigate whether the firm complies with state licensing or bonding laws. Some states require collection agencies to be licensed in their state before they can pursue debtors. Contact the American Collectors Association (612) 926-6547 or your state's collection agency administrator for specific details on state requirements.

    It is also important that the agency understand the laws that govern its actions. The Fair Debt Collection Practices Act (FDCPA) is designed to protect the consumer from undue harassment from collectors. Any third-party agency, individual or attorney should understand the FDCPA rules and should be able to explain them to you clearly. Furthermore, this understanding should extend to the collectors themselves, not just your account contact.

    The Cost

    Debt collection is usually done on a contingency basis. This means that the agency keeps a percentage of money collected. Commissions usually range from 10 percent to 30 percent of the recovered amount. Other agencies require an up-front fee and then take a lower percentage of the recovered amount. The advantage of contingency billing is that you do not pay for uncollected debts. However, some agencies will not offer contingency services for small debts. In these cases, you typically pay a fixed fee for a series of letters or calls.

    SignIndustry.com cares about you and that you get the payment and profit you are entitled to. Below are some other resources for you to do even further research if you need to:

    1.) The Business Consumer Guide is available by subscription for $119 for one year. Individual reports are available for $25 each. To order, or for more information, call (800) 938-0088 or write to Business Consumer Guide, 125 Walnut St., Watertown, Mass. 02172. 2.) The Fair Debt Collection Practices Act (FDCPA) http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm 3.) Better Business Bureau http://www.bbb.org/

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    2.) Include the process in your daily activities.

    Very few entrepreneurs begin their business ventures with the goal of becoming collection agents. Unfortunately, some of us have found ourselves in this unwelcome and unsavory role as a matter of business survival. Developing a consistently successful accounts receivables program does not have to be daunting. By following some straightforward, time-tested guidelines, you can implement a "win-win" strategy that gets your invoices paid on time and allows you to maintain positive, long-term business relationships with clients.

    Indeed, one of the most valuable changes you can make in your accounts receivable process is to define payment expectations with your clients in advance of services performed. You can also enter into a formal agreement that includes a sum to be paid up front, and then verbally review what you will do for the clients. The following four steps should help you in your quest for your money:

    1. Establish financial guidelines. Discuss money during your first meeting with a client. Explain in a clear and concise manner exactly what you will do for the client, while clearly stating your compensation terms. Discuss in detail, for example, the cost the revisions on a project. Your clear communication during this meeting is essential because it establishes important financial boundaries with the client.

    2. Formalize an agreement. The guidelines discussed at the initial meeting should then be documented in writing. In an obligating agreement, you should list the specific services to be performed or work to be delivered and the estimated cost of the services or work. This agreement should explicitly state that your client owes you money for work performed or services rendered as well as the terms of payment, including the payment you expect in advance of services.

    3. Request money in advance. If the job is large enough, business owners should request a portion of their money in advance. Using the terminology of the sign industry is important, such as "deposit on hard goods" or "retainer on services." This allows the client to understand you are asking for something others will ask for as well.

    4. Review verbally. Take the time to review the agreement with your client before signing. This will enable you to reinforce the financial obligation that the agreement specifies. You can also use this verbal review time to inform your client about the value of your work. There should be no question at the end of your meeting about what is being delivered, when to expect it, and how much it will cost.

    3.) Remain calm and professional.

    In your goal of preserving the valuable business relationship you have built up with your client, while at the same time holding the client to a contractual obligation, you are again establishing a guideline. You are training your clients to view your "accounting department," or accounts receivable manager, as an autonomous arm of your business. You are also allowing yourself to concentrate all of your energy on building your business.

    Set billing standards. Do not expect your client to pay an incorrect invoice, or to pay the invoice on time if it is sent out late. Hold yourself to an invoicing standard calling for no errors and consistently punctual delivery, allowing ample time for your clients to meet your agreed-upon payment terms.

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    Set accounting standards. What is the best way to ensure accurate and timely invoicing? The off-the-shelf accounting package you probably used to start your business was fine, but as your business expands, so does your need for an automated accounting system. In anticipating growth and change in your business, look for an accounting system that provides features such as automatic updating of customer and inventory balances and flexibility for modifications as your business evolves.

    Use late-payment fees. While it is almost impossible to collect late-payment fees in a commercial business relationship, you might use them as a tool that brings a collection problem to light. If you do, be consistent about when you add them. When negotiating for payment, you can then say, "If you overnight your payment to us, we will remove all or part of the finance charges" that will occur after 60 days. Do not book these fees as revenue, and don't expect them to be paid. Forcing this issue sends a client to your competitor.

    Bring payment issues to a head. For really stubborn payers, it may be necessary to confront the problem directly. The best time to do this is at the most critical stage of the client's project. Ask clients to put themselves in your shoes. You have a payroll, other clients are paying as agreed, and you must keep the business running. You should also make it clear that a delay in payment is forcing you to stop work on the project so that your business can survive. Explain that if all clients were like this, you would be out of business.

    Consider arbitration. When it comes to legal action, only the lawyers make out in most cases. Consider arbitration when an agreement or contract is disputed. This is less costly for both parties, and allows issues to be resolved faster. Always warn the client that he is forcing you "to bring in a third organization or person" to assist in resolving the payment issue.

    There's no time like the present to implement a new approach to getting paid on time. The incentives are obvious, and the necessary start-up time is minimal. The suggestions outlined above is remarkably simple, but requires consistency and follow-through on your part. You should soon see positive results, and quickly.

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