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Four Reasons Why I Have Few Collection Issues

2 minutes Read

By Gene Marks

CollectionsMy company has more than 600 active clients, most of them small- and medium-sized businesses. And yes, in the 20 years that we’ve been operating, I’ve had a few invoices that have gone uncollected. I have used a collection attorney twice (both times successfully, if you consider only collecting fifty cents on the dollar, after fees, a success). But it’s very, very rare. Even though we’re a service business and we deal with all sorts of small companies with all sorts of cash flow issues, we’ve had very few collection issues. And there are four reasons why.

We get our invoices out fast. Some business owners I know wait until the end of the month before sending out their invoices. To me, that’s crazy – it’s like giving your customers a free 30 days not to pay. Others don’t get invoices out quickly because they’re “too busy.” I don’t accept that excuse either – it’s our fiscal responsibility to maximize our cash flow and there’s nothing more important than invoicing. So, when our work is complete, we update our service records and/or get invoices out by the next day – while the work is still fresh in our clients’ minds.

We accept credit cards. Some people I know resist credit cards because of the fees charged. And I get that. We don’t accept credit cards for most of our clients. But for new ones or the ones that have a history of bad payment, we use them. The fee we pay to the credit company is definitely less than the cost and aggravation of chasing down a deadbeat. Plus, it’s just convenient for many of my clients.

We bill for our work in advance. Because we’re in the service business, we sell blocks of time in advance to most of our clients. Our minimum block is four hours and then we charge our hours, in fifteen minute increments, against that open block. When it’s used up, we send a report with the accounting for the time incurred and an invoice for another block of time. Sure, we sometimes go over and for most of our clients that’s fine, too – they pay the overage and for another block. It takes a little more administration, too. But we get our money up front. Lawyers do this. So do many tech firms (try getting tech support from Microsoft without a service contract and you’ll see what I mean). Blocks of time are a great way for a service firm to keep its open receivables low. Some clients aren’t crazy about it. But most eventually buy into the system.

We stop all work if two invoices are open. Even though we sell blocks of time and tell clients that we don’t do work without one on account, we generally do. Particularly if it’s for someone that we know or even a bigger client. But we draw the line at two open invoices. That means that a client hasn’t paid for two blocks and in most cases an overage. At that point we just stop performing work. In a service business this can be difficult because we might be in the middle of a project and risk a client getting upset. But a deal is a deal. We did what we promised to do and now we’re just asking the client to do what they promised to do in our contract. Stopping work over two open invoices creates enough of a disruption to make a point. Sometimes there’s yelling and screaming. But I’d rather have that fight with only two open invoices rather than with much bigger amounts.

And finally, most people are good people. The yelling and screaming is rare. The fact is that most of our clients are great and pay their bills on time. They respect us and we respect them. They understand that we’re working hard and doing what we say we’re going to do and they do the same.

 

Small business influencer Gene Marks is a guest blogger for CAN Capital. He is a celebrated author, columnist and small business owner.

Photo credit: Tashatuvango/shutterstock.com

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