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Getting Paid Requires Setting a Clear Policy

Collecting on overdue accounts can be a frustrating experience, especially in challenging financial times. The first step to avoiding late payments is to set a standard payment policy with clear terms. Make sure your customers are aware of the policy from the onset – before starting the work. Print the policy clearly on all paperwork (estimates and invoices) and be sure to include any fees associated with late payments.

Collecting on overdue accounts can be a frustrating experience for a small business owner, particularly during the start-up period when every dollar of revenue counts toward staying solvent and repaying debts. It’s not the most pleasant part of being an entrepreneur, but not handling overdue accounts expeditiously will almost certainly endanger your business’s cash flow and long-term viability.


The following points show you how to establish a sound and rational policy for collecting payments.

Do What You Can to Prevent Late Payments

Establish a standard policy for payment and make your customers aware of them before starting work. Some types of businesses may require all or a portion of the payment up front, while others allow terms such as payment within 30 days after receipt of invoice (i.e., Net 30). Your invoices should also clearly state any surcharges for late payments.

Be Careful with Credit

If you provide goods or services on credit, develop qualification standards that are specific, yet fair (e.g., a good credit history from a credit bureau or good bank references). Put your credit policy in writing and make sure all employees understand it. You should also have the policy posted in your store, or available as a handout.

Take the Right Attitude

Your collections policy will do no good unless you enforce it. Do not shy away from a potential confrontation, but avoid provoking it as well. Set your policies and stick to them.  If you’ve met your obligation and a customer has not, you’re entirely in the right.

Find Out Why

On the other hand, don’t assume the customer is entirely wrong. Contact the delinquent account and ask politely for an explanation. It may well be that the invoice has been lost or is awaiting approval. A customer with cash flow problems may request extra time. How you proceed may be very situational. Based on your experience with the customer, you may feel confident enough to allow extra time or installment payments. Make sure you and the customer clearly understand any compromise. Be flexible, but firm; and don’t hesitate to follow up.

Take Stronger Action

If your collection attempts fail, it may be time to turn to an attorney or collections firm. Terms for these services vary; they may require a fee and/or a percentage of the invoice amount, or a retainer. Again, your course of action will depend on the situation. You may decide the amount of the overdue account does not justify the cost and effort to collect. If so, write it off as a bad debt and move on.

Don’t Make the Same Mistake Twice

Most everyone deserves a second chance. Should customers with poor payment histories approach you about working for them or restoring credit, don’t immediately refuse unless you are absolutely certain they remain bad risks. Ask them to explain how their situation has changed and decide whether it makes sense to restore the relationship. As a precaution, insist on stricter terms such as advance payment or cash-only.

Leverage Technology to Ensure Payment

Business management software often has auto-pay features that help businesses get the money that they are due into their back accounts. For example, Jackrabbit’s auto-pay features enable its business owners to set up (via credit card on file or ACH) automatic deposit of funds to your accounts. This alleviates the need for paper billing or emailed invoices and ensures that you have a much higher percentage of your invoices paid by the date that you establish. The only payments that would fail to be fulfilled using this process would be any invalid credit cards or accounts with insufficient funds. Those with experience using such processes are ecstatic with the results they see almost immediately including improved cash flow, elimination of collection processes and elimination of an invoicing process. Most parents either prefer or are happy to accept auto-pay terms from those they do business with because it makes paying their monthly bills easier. In fact, many organizations are setting policies that accept only auto-payment using either credit cards or ACH processes or offer it as an option. Many of those setting an “only” policy are also using auto-payment processes to help them to become paperless.

Read more about auto-payment and how it enables you to automate your tuition collection process

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