Small business owners tend to think of collecting invoices in two extremes; good payers vs bad payers. But most of your customers fall somewhere in between. Some of your customers may be having a hard time due to the COVID-19 environment and you will have to accept that some of your customers will never be able to pay you. However, for those customers are still in business, there are a number of ways to get your invoices paid.

Consider a Cash Discount

Many firms give an extra incentive discount of up to 2% if the invoice is paid in less than 30 days. In many industries this results in a prompt payment in order to take advantage of the discount. Some firms have corporate policies that requires them to take advantage of all discounts. Even as little as 1% discount can get you paid quicker than without a discount.

Write a Letter to Get Client to Acknowledge Confirming Debt Balance

This letter can be used to get your customer to admit in writing what he or she owes your firm and to potentially get information on invoice disputes. Consider asking your bookkeeper or accountant to send a confirmation letter to any customer who may potentially default. Please note that under the Fair Debt Collection Practices Act (FDCPA), you may be forced to prove your customer owes you the money. Debt validation is a federal right granted by the FDCPA to debtors. Having a written response to your confirmation letter will give you the debt validation proof you need.

Use Promissory Notes

If your customer cannot pay you promptly in a lump sum, consider using promissory notes and its an excellent way to formally establishing the specific amount owed and firm dates of possible payments. You may also be able to earn interest rate income. You may ask yourself what is good about creating a promissory note. Consider that your customer may not have the money now, but they may have the money in the future.

Talk to your attorney to ensure that your promissory note conforms with the laws of your state.

Look For the Red Flags

  1. Is the customer paying later than previously?
  2. Did the check fail to clear the first time around?
  3. Has the customer address changed due to closure of a facility?
  4. Is the customer’s check drawn on a new bank?
  5. Has the company’s name changed?
  6. Are you suddenly being asked to extend terms?