Making Sure You Get Paid
As the recent article in the New York Times demonstrates there are no truly sure bets when it comes to collecting payments. With news that an active political campaign is months behind paying bills it leaves no doubt that there are no absolute guarantees in getting paid. There are steps however you can take to give your organization a better shot of getting paid. The promo items industry is no different than any other industry.
First for most orders you should run a credit check on your client. This is something you should disclose to them prior to ordering with you. There are many outlets for this information with D&B still being the most popular. Keep in mind business credit information is notoriously inaccurate and is usually far worse than even personal credit histories. Take what is in the report with a grain of salt looking more for trends and other negative information like suits or collections.
After reviewing credit be prepared to offer your client terms. Most clients will expect net 30 terms with most large businesses, educational institutions and government agencies requiring anywhere from 30 to 60 days. The time value of money comes into play here with the longer a client goes without paying you the lower your margins ultimately end up being. Find a compromise and track it closely. Do not offer your clients more in total credit than you can afford to lose in a percentage. Figure worst case of a ten percent loss, if you can afford $50,000 in outstanding debt lend your clients no more than $55,000. Never extend yourself to the point that you cannot pay vendors as they are your lifeline. Have the expectation that most customers will not pay until 5-7 days beyond the terms date as many organizations use the date they receive the invoice versus the date you place on the invoice.
Now you have extended credit and your customer does not pay. What are your options? First make sure you are diligent about calling within a set period. If your invoices are due in 30 days call on the 35 day every time for every client. Call again ten days later if the invoice remains unpaid. Over the years we have found that by day sixty the chances of getting paid in full exponentially decrease. There is one notable exception which is in dealing the government. As sad is this is government agencies are notoriously among the worst payers. Take that into consideration when bidding on your next government contract. By day sixty the choices diminish. Many advise a certified letter be sent so you create a paper trail. This is confrontational though and may totally alienate your customer. On the other hand if they have repeatedly broken payment promises you may no longer want them as a client and may value the paper trail. If after receiving such a letter in which you demand payment they still do not pay you really have no choice but to use a collection agent. D&B operates their own branded collection services and although the fees are exceedingly steep you can be assured when using D&B they will notate the credit files of those that they are actively trying to collect balances upon. The mere threat of a collection will often get clients paying.
We tend to error on the side of caution and have never had to use most of these tactics but do follow strict policies regarding following up on late invoices. A majority of the time your clients simply misplaced the invoice and need a nudge to get a copy of it paid. Hopefully some of these practices will help you in the future. They’ve certainly helped maintain a sense of order for our logo apparel business.
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