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phanio
01-22-2009, 10:48 AM
I just read a great post from the WSJ's online blog titled ‘What to do about slow payers.” - not sure if I should put a link here - not sure if it is allowed - and I don't want to promote them.

But, it was a good blog on how many small businesses are trying to collect from slow paying customers while at the same time not losing them as future customers.

Some tips they provided were:

“–Use a Personal Touch. One Houston company’s chief executive spent his time personally calling customers who were 30 days past due and patiently explained his dire situation. It worked.

–Withhold Service if They Don’t Pay Up. Emergency calls to the service department of a New Jersey heating and air-conditioning company get rerouted to an accounts-receivable clerk, who tells them to pay up or the technician won’t show up.

–Be Proactive in Collecting Money. Email invoices instead of mailing them. Call customers within a day or two of a late payment. Build several contacts within a customer’s company. Let customers pay by credit card or wire transfer.

–Negotiate new payment terms. If you see some customers who could agree to paying bills early, cut them a deal on service or a discount on products. And if they’re slow payers, put them on a payment plan that ensures that you still get paid in the long run, rather than getting nothing.”

I really like the last one. Providing incentives to not only get paid but to speed up your cash flow. Find out what is it worth to your company to be paid early and offer that as a discount.

However, this also has to be mitigated with your current time and expense. Some customers are just not worth it. That old 80/20 rule. These are the ones to strong arm and not deal with again.

As was asked in this blog, what are some of you doing to speed up collections without coming across as a jerk?

vangogh
01-22-2009, 11:42 AM
Joseph. First it's fine to link to a post or article you find interesting. The only time it becomes a problem is when it's obvious the link is only there to promote yourself in some way. Even then we'll use our judgment.

It's a good question given where the economy is.

I haven't encountered the problem all that much and hope that continues. With new clients I always or almost always require a deposit up front before starting work so I know I'm being paid something (usually 50%). I ask for the remainder when the work is finished and prior to the work being delivered. Theoretically I should be paid everything before the client receives anything.

Sounds good in theory, but I usually do deliver before getting paid the final amount. Most of the time after working with a client during the length of their project I can get a good sense of whether non-payment will be an issue. For a good client I don't mind bending the rules some, but I still need to pay the bills so there's only so much leeway. I generally won't continue to provide services if someone hasn't paid for previous services. If a client can't pay for one project there's no reason to expect them to pay for the next and if they aren't paying they aren't a good client.

On rare occasions I've had to pester a client to pay. In those cases it's someone I knew I wasn't going to work with again based on the relationship or lack of one that developed. When that happens I have no worries about losing the client since I've already decided I won't be accepting work from them in the future. I'll start out asking nicely for the payment and the longer non-payment continues the more aggressive I'll be and the less polite I'll be in asking for the money.

huggytree
01-22-2009, 11:59 AM
what id like to do is get a credit card # and have them sign something saying after 30 days late it automatically gets charged to the credit card....i dont think any of my customers would accept it.

lately i have constant late payers...its always 'i keep forgetting'...i pay my bills within 3 days of recieving them...i expect payment before the 30 days is up...im lucky that 80-90% of my customers pay on time , every time.

of course most of that 10-20% are customers who give me constant work and make me alot of money....i cant dump them in bad times like were currently in...they all do pay eventually, but its stresses me out...id like to use my 'lawyer in your pocket' free legal letters thingy, but that would end future business.

i should just get tough and charge them the 1.5 % interest which IS in my contract..but once again i would probably lose future business.

once any jobs are past 30 days i never do further jobs for anyone...why dig the hole deaper....ive had to use that one a couple of times...magically money appears the next day....usually i ask for future payment while getting the back payment in these cases.

vangogh
01-22-2009, 12:10 PM
huggy can you charge something in advance to cover materials? That might help alleviate non-payment somewhat. If your customers are eventually paying you that's good, but I know the stress of wondering when you'll get that payment.

If you get something up front your final bill is less, which may make it easier for the client to pay.

orion_joel
01-22-2009, 07:29 PM
Nothing against your methods and reasoning huggy, but my personal preference on consistent late payers is to not do business. I can understand your position of constant steady work even if the money does take a time to get there. However the question you should ask yourself while they are 10-20% of your business how much of your time do they take up. If they take up more time then the financial value to your business i would consider asking yourself if it is wise.

I have previously had problems with payment getting through and the most common cause i think is giving people trade terms before they have proven their ability to pay even once. Many service industries are the same, where they will do a job then go and bill the client and just wait for the payment. While it would probably be more of an advantage to get the at least first one or two bills paid up front and then slowly extend terms. The biggest problem though lies in how the industry operates standard, by default it seems some building trades 30 days is expect (hence why i am not looking to go into the building trade any time soon.)

huggytree
01-26-2009, 06:29 PM
if it was 5% of my business id say good bye to them...20% is too much to dump in a recession which appears to be still getting worse....i may have lost one of them already anyways(the biggest one)....

in 1 month ill be doing my mailer again and if i gain a couple new customers id definately consider dumping the bad ones...right now i work 100 hours in the field on an average month...until i get up to 160 hours a month i cant see dumping anyone...im no where near compasity...Feb may be a 40 hour month...would anyone dump a slow paying customer when they work 40 hours a month?

nealrm
01-26-2009, 11:21 PM
I hate dealing with late payers. I deal with a close group of about 200-300 real estate agents. Most know and have worked with each other. About 99% pay there bills as expected. But a few are just deadbeats. My main tool is withholding services. (I own the main real estate advertising outlet in the area). But this is a tool I really hate to use.

orion_joel
01-27-2009, 08:13 PM
You have to weigh things up in terms of how valuable a late paying customer is. Say for example that you did a 4 hours job for someone and bill $400(just a easy round figure for this purpose). And your costs to provide the service come in at $50 an hour or $200 for the job. So your profit for this job is $200. If you set payment terms at 30 days and they pay then you have achieved your maximum profit per hour.

However if they don't pay on time, and you then send a reminder, it costs you money in time to write the letter, in the printing, and mailing of the letter. Even for a short please find enclosed your overdue account letter, you are probably going to spend 15-20 minutes doing so. If you do so every 14 days that it is overdue, and they don't end up paying until around 75 days. you have got up an additional 45-1hr spent on a job with $200 profit. Maybe more time if you actually try calling the person as well. So suddenly your $50 profit per hour has dropped to $40 per hours, or less.

How about if you had to use supplies and these are on the invoice as well, you may have to pay out of your pocket for these long before you ever see the money.

But even still while you are making less per hour, the whole point should be what could you better use that time to do. Marketing, calling some other builders you have worked for but not for a while anything to generate more quality business.

I personally, have 30 and 60 day accounts with my suppliers, if people want terms like this then i send them to a different company i don't deal with customer that are not going to either pay up front or that have proven themselves as good payers and will pay within a week. While i have the money in my account to pay for goods if the account is due and i have not received the money, it is of great detriment to me to do so.

huggytree
01-27-2009, 08:40 PM
the thing is when they are late payers your not a jerk...they are...

with some customers ive called daily when they are late

lately i send a 2 letters asking for payment and after 30 days past due i start weekly phone calls....ive never had 1 customer more than 30 days past due until 3 months ago...now i have had 5 since...still have 2 right now. got 1 promise of payment next week(he will) and one unreturned phone call from guy #2(i will go to the homeowner in 2 weeks).

being a subcontractor the best thing is to threaten to go to the homeowner and ask for the $ directly....no one wants that....

i am getting setup with a credit card company and i am considering asking repeat late payers for credit card #'s...take it or leave it...

also i am getting serious with my lien rights...anything over $5k is 100% protected no matter the business relationship with the contractor...

i see the increase in late payers as a sign of future no-payers...its not all the wasted time and phone calls...its the stress of having $10k-$20k sometimes out there hoping to get paid..im a 1 man business and often have $35k-50k owed to me at one time. how would any of you like to loose $50k off your salary ? i dont want to loose $1 dollar

orion_joel
01-27-2009, 11:03 PM
Huggy, it does sound like you have the premise to not want to do business, with these late payers, however are at the same time, want to do business purely to say you have the business (or this is the perception i get from your comments, which may be different to what it really is).

It sounds like you are trying to combat this scenario arising a little by getting a credit card processor. Maybe a direction that you could go with this is for customers that have been consistent late payers require a 50% deposit, before commencing work paid on the credit card. This will at least alleviate what i would imagine is some of the stress, at least you would have a good portion of the money for goods or to cover minimum expenses. The one thing that you need to be sure to do though is get the signature approving the credit card to be used. Because the end of the day unless you have a signature of the card holder the transaction can be reversed, leaving you potentially in a worse situation.

I imagine that there will be a point when you will find you can survive by cutting the late payers, and this will be one of those points where you business may move to that next level.

phanio
01-28-2009, 07:25 AM
My problem is that I like to treat people like I want to be treated. I will not pay an up front fee - period. Just my stubbornness. However, I have never not paid or paid late in my life – for anything. Makes it hard for me to ask for an up front fee as I won’t do it. I don’t mind paying in the middle – provided there is some defined and measurable event. But, I like to see what I get before I pay (and, I will pay).

Regarding credit cards – unless you run the card right away for approval, you don’t know if the card is bad, closed, or overextended – do I have this wrong. Plus, the costs (while not nearly as bad as a no-payer) are still huge.

I went to a Chevron station the other day to get gas. They charged my card $125 before I even pumped gas. After I pumped, I received a second receipt for the correct amount. But, the $125 showed up on my transaction history for a few days, until the Chevron batched and sent in the receipt. While everything worked out in the end, it was nerve racking waiting for the charge to be adjusted. Now, I will never go back to that Chevron station – even if their gas is $0.50 per gallon.

Maybe just have to change with the times. Ask for up front payments when times are good and not worry about it when times are bad. From what I get from this discussion, is to set up a process in the beginning and stick with it.

huggytree
01-28-2009, 08:56 AM
yes i want to cut out the late payers.

but id rather have late payers right now than lose $75k in work in 2009

I need to make that $75k so i can help the goverment right now..without it they will lose $30k in taxes....i need to do my part

anyways.....i know of a credit card processing company which sets up a whole program for this situation...i hire them to handle it....they have experience with it..yes i will lose 5% or so....

in good times id dump these guys.....in bad times getting worse ill take precautions and cover my *ss and keep them....when i get busy they are the first to go....

new customers have completely dried up right now (typical for middle of winter in WI). If i dump them i cannot replace the income...i am still only working 100 hours a month on average..im not close to compasity.....this month its down to 75 hours in the field, next month im expecting 40(typical for Feb in WI-same as last year)

one of the late payers right now has always paid on time in the past...should i dump him for 4 on time payments and 1 late?.....he will dump me when i start sending him legal letters and contacting the homeowner....in 2 weeks thats whats going to happen.

Vivid Color Zack
01-30-2009, 01:10 AM
The best way I've been able to lessen the problem of late payers has been our online payment system. For printed goods most companies are used to paying 50% up front, or COD. When they purchase goods online they are used to paying 100% up front, that's just the nature of ecommerce. Now more and more of my clients are using this system adn the only trouble I ever run into with late payers is from clients I acquired before our web site was functional and are still paying us COD because that's what they are used to doing with us.

Though we do have a nameless client out there who still owes us a few grand that we've completely written off as gone. They've shut their doors and the owner is bagging groceries to feed his family. I don't have the heart to chase him for it.

phanio
02-01-2009, 02:16 PM
huggytree - you stated "anyways.....i know of a credit card processing company which sets up a whole program for this situation...i hire them to handle it....they have experience with it..yes i will lose 5% or so...."

Can you expand on this a bit. Do you take a cash advance and then let them collect? Or, is it just part of their service as a processor? Are they good at collections? 100% - 90% - 80%? Do they anger your customers?

Sorry about all the questions, just interested.