Like Charlie Brown in a Peanuts cartoon standing by the mailbox in hope of receiving a Valentine’s Day card, too many of us small business owners  these days find ourselves anxiously waiting for the arrival of that overdue payment. 

If the problem gets too serious, it can domino-affect our entire lives –  as we stretch our mortgage payment … max out our credit card limits … make minimum payments on bills … ignore an invoice or two (especially if from another, no-clout small business owner) … and wake up at three AM wondering how much cash value we can strip out of our life insurance policy or the kids’ college fund … or just lie there in the dark listening to the financial and emotional infrastructure of our lives as it begins to creak, teeter, snap and slowly topple.

Though all companies are vulnerable to the problem of customers who play the game of slow-pay-no-pay, it is usually the small business owner who feels it first and feels it hardest. 

Fortunately, it does not have to be that way.  While there is no guarantee that all invoices will be paid promptly, there is a lot business owners can do to take charge of the slow-pay-no-pay problem. 

The best way to solve a slow-pay-no-pay problem is to avoid it from the start.  Here is what the experts recommend:

• Have a credit policy in place.  This is the single best way to reduce late payments.  Unfortunately, only about 5% of companies have such a policy in writing.
• Discuss your credit policy with customers.  The minute you get a new customer, explain the payment process.  Still, many businesses hesitate.  They have a misconception that that it will scare people away.  At the minimum, include a paragraph in the contract.  This sets expectations, and it goes a long way to avoiding problems in the future.
• Have a contract.  Everything should be in writing.  The business should use a contract to outline what service they will provide, how they will get paid and how much, and what will happen if the customer does not pay. 
• Take deposits, retainers or credit card payments.  If a customer cannot prepay, there is a good chance they cannot pay at all.  If the customer does not have the funds to make a down payment now, where will the money come from to pay the bill at the completion of the job?
•  For bigger contracts, set up a payment schedule.  On a $15,000 job, for example, ask for equal payments of $5,000 initially, $5,000 at the halfway mark, and the final $5,000 upon completion of all work.  Also include sign-off on each step, with no work going forward without written approval of what has already been completed. 
• Consider credit applications.  A small investment up front can safe you thousands of dollars later.
• Tighten up due dates.  Mark the due date on all invoices as 15 days.
• Focus on customers who can pay.  It may sound obvious, but keep in mind that no business is better than bad business.  

There are no guarantees that you will never have collection problems.  Still, the above steps should go a long way to reducing the slow-pay-no-pay problem, and maintaining not only your cash flow, but also your peace of mind.

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