Last Updated Aug 2, 2010 2:15 PM EDT
Extend credit cautiously. "When a new account wants credit I let them know exactly what they need to receive a credit line, and then provide them with the credit â€¨application," says Mitch Pisik, CEOâ€¨of Breckwell Products, a manufacturer of wood and pellet stoves in Arlington, TX. "I immediately review the application, contact references, and let the account know how much their line is, or why they did not receive one." Consistently late payments result in the line being rescinded; the customer must then pay in advance, on delivery, or by credit card.
Send out professional invoices. Even if you're a sole proprietor, your invoices should not make you look like a rank amateur. Consider an online invoicing app for small businesses, many of which are free or low cost. Geoff Bartakovics of TastingTable.com, a rapidly growing epicurean e-newsletter, has added 100,000 new subscribers in the first quarter of this year and quadrupled revenue over first quarter of last year. To get paid faster by his advertisers, he tried American Express OPEN's new AcceptPay, an electronic invoicing and payment solution. He found that by billing and collecting online, he was able to get his days to payment down to 15 days instead of 45.
Be a Squeaky Wheel. We have a very regular program to send out late notices once a week, each week getting stronger," says Larry Lambeth, president of Employment Screening Services in Spokane, WA. "When they know they will get a notice from you if they are late, it really does help with the smaller companies. When they are 20 days past due, they also know they will get a call from us and their account will be put on hold if they hit 30 days past due. I also make sure to have a good working relationship with the accounts. They become part of your collections team because they don't want to lose your services and it helps keep them in the loop so they don't feel you just cut them off."
Demand Prepayments. "After having thousands in A/R and no payment in sight, I switched to prepayments," says Krista Conway of Trendy Media Group, an Internet marketing and social media firm. "Only a few customers get the liberty of paying after the work is complete." Conway says her clients have adjusted to the change. She allows some new clients to pay half down and the other half upon delivery. Two clients pay after the work is completed because they have excellent payment histories.
Get creative. Susan, a business-to-business service provider who asked that her full name be withheld, used a highly unusual technique that she learned from a banker in Texas. "I kept trying to collect a long past due account from a client and after too many false excuses, she just stopped responding to phone calls, e-mail and snail-mail," she says. "So I got one bag of red beans and one bag of rice to send her, along a letter saying 'I'm so very sorry that your business is doing so poorly. That is the only reason that explains why you can't pay my bill from so long ago. I know that it's hard to afford food when you have no money, so I am sending you some red beans and rice so you won't go hungry. I sure hope it helps!'" Susan was paid the following week.
What tactics have you used to shorten payment cycles? Share them with your fellow entrepreneurs.
Image from Flickr user Quaziefoto, CC 2.0