Alinovi believes her prompt no-nonsense way of addressing laggard fee payments is plain old-fashioned horse sense. And with the economy still sputtering, small businesses are getting more creative not only about how to increase revenues but also about retrieving money owed them.
Financial information company Sageworks found that, based on data from the past two years, several industries have more than one-third of their assets tied up in accounts receivable.
And Intuit’s 2009 “Get Paid Survey” found that every month 22 million of this country’s very small businesses — with few or no employees — wait for about $1,500 in overdue payments, for a collective total of $33 billion of arrears. Not surprisingly, Intuit’s study notes that 42 percent of these business owners say they lose sleep wondering if they’ll ever see that money.
If they do want to see that money, the best strategy, say experts, is to go after it in a timely fashion.
“The main reasons small business owners do not call late-paying clients right away is they lack internal staff to take on those tasks, and they’re afraid of offending their customers,” said Geri A. Gregor, a CPA and consulting partner at Grassi & Co. in Jericho, N.Y., where she works with many small business owners.
Just do the math to see what these delays will cost you.
Most payment terms are 30 days from receipt of invoice. So, if a company waits 90 days or longer to inquire about slow payments, it could be five months before any money is forthcoming. In the meantime, business owners have their own bills to pay, and if they have to borrow, or pay interest because they don't have cash on hand, the costs add up quickly.
Gregor advises companies to start the collection process internally, even if it means informally assigning the task to a team member, and let them know you won't let the matter drop.
The ways in which business owners get deadbeat clients to pay up varies. Some prefer the straightforward approach, while others shame them into paying.
“My first strategy is to appeal to the client’s emotions,” said Ted Scofield, a lawyer who, with his wife Christi, owns Icebreaker Entertainment, a consumer-product design company in New York. He began using this tack two years ago, when an $8,000 fee didn’t arrive on time. “We had been counting on that money to pay bills,” said Scofield. After he got no response from an email, Scofield called the company’s CEO. “I told him we’re a true mom-and-pop shop and that, without the money, we would struggle.”
The client, very apologetic, paid up in one shot. Scofield has used this approach successfully many times since. “It works,” he said. “When clients realize the money they owe you is not just a drop in the bucket, they empathize.”