While having a small accounts-receivable balance indicates good financial management, (around 1.5% to 2.5% of your gross income), collecting past-due balances is a displeasing aspects of business. Studies show that 75% of receivables that are 3 months delinquent are paid. However, this number drops to 56% after 6 months. Therefore your delay in collecting past-due accounts will reduce your chance of receiving payment. This checklist should help you reduce the stress of collecting past-due accounts:

• For example, offer a 2% discounts for accounts paid within 10 days rather than 30 day.
• Encourage customers to pay sooner by offering discounts for early payments. Most clients pay their bills and will pay if they have the funds.
• After 30 days of no payment, add a service charge. Contact your attorney to ensure that you do not exceed your state’s usury statutes and federal law.

Step one:

Make a personal visit to the customer to discuss past-due accounts. Remember, that you value the client-relationship. Call your customer when personal visits are not possible. Appeal to your customer’s business sense while respecting the valuable client relationship. For example, try “I’m the smallest of the smallest. I can’t play the role of bank because I am so small.” When you talk with your customer, offer some solutions. Give your client a way out of this uncomfortable situation.

Step two:

Play “good cop/bad cop”. Ask your secretary or partner to call on your behalf. Ideally, the client will be so grateful to talk to you, the “good cop”, that he/she will settle the account so they will not have to talk with the “bad cop”. This allows you to maintain the client relationship, while collecting your account.

Step three:

Send a series of reminder letters. The first letter should include the following statements:

• concern that your valued client has allowed his/her account to lapse
• acknowledge your goal of providing high-quality services
• you are aware of his/her delinquent account status
• contact you promptly or his/her credit status is in jeopardy (include your contact information)
• the total amount due
• pay this amount to avoid sending the account to a collection attorney. Say, “we regret having to take this action, but must do so”
• Thank you in advance for settling this matter

Your subsequent letters should include several choice boxes:

• I am sending a check on _________
• This is part of the bill to show good faith
• Here’s the whole amount; now stop calling me

Step four:

File suit in small claims court. In Philadelphia, the maximum amount allowed for small claims is $10,000. Corporations and associations with less than a $2500 claim do not need an attorney to represent them in small claims court. If the past-due amount is more than allowed by the small claims court, then contact your attorney to file a lawsuit to collect the account.

Follow these steps and you should be able to collect your past-due accounts while preserving your customer relationship.

Sharmil McKee | Business Lawyer | blog@mckeeoffice.com