Increasing the Odds of Your Business Getting Paid

Cashflow is the lifeblood of any business.  It allows the business to operate, make the necessary payments, and avoid taking on costly debt.  However, a customer not paying his or her bill can cause a huge problem with a business being able to maintain adequate and necessary cashflow.  It can even cause a business to go under if the bill not being paid is essential to the survival of the business.

I have been contacted by businesses looking to collect past due accounts from customers.  Usually, when I talk to a business owner, I spot errors and mistakes that the owner is making when it comes to collecting from customers.  I am going to point out 5 easy and simple things that a business owner can do to help increase the amount of money collected.

1. Have a written contract

Almost every business needs a written contract that spells out the terms of the transaction between the business and the customer.  I know that a written contract does not apply to every business such as restaurants.  But it is vital for most businesses that perform a service or provide a product and will be sending an invoice later.  A contract in writing spells out what is to be performed or delivered, the cost and when payment is due, who is responsible for payment, what extras are not covered, etc.

A contract is also vital if there is a dispute and the matter goes to court.  A written agreement allows the judge to quickly and easily determine what was to be performed by each party.

2. Invoice on a regular basis

Companies who send invoices get paid.  Invoices should be sent at the same time every month.  I would recommend trying to time your invoice to arrive near the time most of your customers get paid.  My invoices go out at around the 15th of each month.  The invoice should lay out exactly what you did for the customer.  Make the customer feel like he or she is getting a good value for the money.  The invoice should also lay out when payment is due which is usually within 30 days.  And if any additional interest is due for late payment then make sure to list that as well.

3. Keep accurate and updated accounting records

A very common defense that I see in court in a collection action is when the debtor does not dispute the debt.  Rather the amount that is sought to be collected is not accurate.  The customer alleges that she made payments to the business that she never received credit against her account.  Rememer, the standard of proof in a civil action in Tennessee is preponderance of the evidence.  The burden is on the company bringing the collection action.  I have seen judges dismiss a collection action simply because the business was unable to show accurate accounting statements.  An element of a civil action is damages and a plaintiff must show the amount of damages that he/she is entitled to receive.  A judge is not going to guess or just award a rough estimate of damages.

For my next blog I am going to conclude with the final 2 things that can help a business collect more money.


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