Not Getting Paid? 4 Myths About Why Your Company Can't Collect

Last Updated Jun 13, 2011 3:40 PM EDT

It makes sense that a shaky economy makes it harder to get paid these days. Except that it's not.

According to a recent survey conducted by the Institute of Financial Operations trade group and electronic invoicing supplier OB10, only a slightly higher percentage (59 percent this year versus 55 percent in 2010) of companies are calling customers more often to receive payment. But the CEOs, owners, CFOs, and accounts receivable managers who responded to the survey said that on average they're getting paid about three days sooner in the payment cycle compared to last year. Not a huge decrease, but then again it didn't go up as you might expect.

So what if your company is still having trouble collecting? Michelle Dunn, founder and CEO of the American Credit and Collections Associations and author of "The Guide to Getting Paid" (Wiley, 2011), says believing some of the following myths might be your biggest obstacle to getting paid:

1) It's somebody else's fault you're not getting paid. Sure, your reluctant customer may have the power to cut you a check, but you have the power to avoid deadbeat customers. You also have the power to track accounts receivable aging, identity people who are starting to get behind, and contact them to see if there's anything you can do about it.

A lot of business owners are reluctant to call and request payment for fear of alienating customers, Dunn says. But, if nothing else, calling with a question requires someone to look up your invoice and that person could push it to the top of the stack. That can make a difference. You can make an even bigger difference by setting up a credit policy designed to weed out bad debtors. "You almost bring it on yourself if you don't take precautions," Dunn says.

2) You have to follow your big customers' payment policies. They don't have to follow yours. Most small business owners are excited to get a big sale from a big company. In their excitement, they usually accept whatever Goliath offers in the way of payment terms. "You have to stand up for yourself and not let a big company take advantage of you just because you are a smaller company," Dunn counters. "You have to get paid. You're in business to make money, not friends." There's nothing wrong with describing your policies and asking the biggie to follow them. If Behemoth won't, try it their way and see how it goes. If it doesn't work for you after a while, ask again. Then make a decision: Do you want a friend, or a profit?

3) You don't need a credit policy, because it's too much trouble. In reality, a good credit policy should be short, no more than one to three pages. "Otherwise no one's going to follow it," Dunn says. A viable policy could consist of no more than requiring all customers to sign a credit application, then checking references and extending credit based on the results. Such a policy will, at minimum, give you information you can use if the customer doesn't pay. "If you have to take someone to small claims court, having that applications signed by a customer can help you collect," Dunn says. "And it will also help an agency hired you to collect."

4) You don't need a credit policy, because you don't have any trouble getting paid. While not all businesses have a lot of trouble with slow- or non-payers, it's almost universal to have some experience with it eventually. And when you're a small company, getting stiffed by a single customer can be disastrous. So be ready. "If you have a business and don't have a credit policy, it's the same as not having a business plan or marketing plan," Dunn says. "You're just winging it and hoping for the best."

Mark Henricks is an Austin, Texas, freelance journalist whose reporting on business, technology and other topics has appeared in The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Learn more about him at The Article Authority. Follow him on Twitter @bizmyths.

Image courtesy of Flickr user Caza_No_7, CC2.0

  • Mark Henricks

    Mark Henricks' reporting on business and other topics has appeared in The Wall Street Journal, The New York Times, The Washington Post, Inc., Entrepreneur, and many other leading publications. He lives in Austin, Texas, where myth looms as large as it does anywhere.