From CBIA News, October 2001

Getting paid in uncertain times

How to avoid having late-paying customers

By Chris Amorosino

Free-lance writer in Unionville

The days when a small-business performed a service and then waited for payment are gone. Jack Veiga, a member of the board of trustees and a professor of management at the UConn School of Business, says that model is no longer something small-business owners can follow because a few bad customers can ruin an entire year.

“If you don’t get some payment on the front end, you are running a huge risk,” says Veiga. He advises businesses to get half of their payment up front and work out payments that dovetail with completed work. Build in a set of project milestones so at least all your material and labor costs are always covered. Doing so minimizes your exposure and guarantees that you’ll usually already have about 75% of your money before any payer starts to renege. 

It’s also important to clearly tell customers up front what your payment policies are, including penalties for late payment. Whatever policies you adopt, follow through. If you require payment in 30 days, call on day 31, but use good customer service skills. Veiga says to treat each customer as a valued customer. Re-explain your policy, and say that you’re certain their payment is coming, but you’d like verification. Take notes during this call and get a firm commitment on when payment will be received.

The impact of September 11

Contacted after last month’s terrorist attacks, Forest Old, executive vice president at Dun & Bradstreet Receivable Management Services, says businesses are entering an entirely new economic environment. The likelihood of late or non-payment has increased. Cash will be king in these uncertain times.

“Any small business should today ... be contacting all outstanding receivables to see what the plans are for payment,” Old says. He advises businesses not to wait for due dates. Honor customer relationships and know that this uncertainty will eventually pass, but in the meantime, do everything possible to assure that you will still be in business when the current situation improves.

 
When you contact customers, make sure their expectations are being met in a timely fashion. Be aggressive about payment, but in a way that solidifies your business relationships. Old believes that customers appreciate this type of early, proactive contact. They understand that it makes good common sense.

 
Ask customers how they are doing. What are their views on the business environment? How do they think the environment will affect them? How are they enjoying your product or service? Is there anything else you can do for them? Treat these calls as professional exchanges of information. You will gain knowledge of how and when you will be paid, and you may learn information that will help you sell more products and services.

If you’re starting a new relationship with a major customer, use good risk-management techniques. Consider getting a Dun & Bradstreet report on your new business customer. Research the customer’s financials on the Internet. Ask for and contact references. If the new customer sells to consumers, check the health of the customer’s marketplace. 

“In this environment, you really have to look at a new business deal as an investment, not just a sale. You’re putting your capital to work on behalf of your customer, so you want to optimize who you sell to,” says Old. 

A wake-up call

Old calls the current business environment a wake-up call. “We’ve had a pretty easy time of it the last decade. Some bills are coming due right now. It is up to the American business community to do what it does best, and that is to manage entrepreneurially, creatively and with great diligence. This is serious business,” he says.

Both Veiga and Old recommend going back to the basics. Be conservative on cash issues. Be serious, be diligent, use good common business sense, follow up with customers, and assume nothing. 

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