Running a business is a great experience in so many ways. You get to do work you love and be your own boss. The worst part for most entrepreneurs is the administration, particularly in making sure they get paid. If you’re concerned about how to get the money you’ve got coming for the goods and services you’ve provided, consider these three simple tips.
Work with Staged Payments
It seems easiest to bill a customer for the entire job when you have completed the entire job, but that may not be the best route to take. If you can separate the job into different phases, you will be able to avoid expending labor, supplies, and parts for additional phases if the previous phases have not been paid in full. For example, a body shop might bill once after removing damaged parts, once after ordering new parts, and so on. You may still have delinquent accounts, but at least they’ll be smaller.
Explore Legal Tools
State and federal laws contain a number of protections for contractors and other types of businesses. These options give you recourse for dealing with customers who do not pay their bills in a timely fashion. For example, mechanic liens allow you to place a hold on the sale of a car until the delinquent customer pays you in full. The balance is subject to interest, often at a rate that you determine. You still may not get paid quickly, but you will get paid eventually. You also have the option of hiring collection agencies or taking the customer to small claims court. Research your local laws to see what is available to you.
Use Factoring
Would you be willing to take a little bit less from a customer if you could get the money upfront and let someone else deal with the actual collection? If so, factoring might be a good option for you. Factoring services buy your overdue bills at a percentage of their face value, often as much as 90%. You get paid by the factoring company, which then uses its size and experience to collect from the customer. You get your money in time to pay your own bills while someone else does the “heavy lifting” of collecting payment.
Many business owners make the mistake of being too lenient with customers. Well-worded contracts can help avoid a lot of problems, but there are always people who work to avoid payment. These tools can help you position yourself to minimize your losses from delinquent bills.
Kara Masterson is a freelance writer from Utah. She graduated from the University of Utah and enjoys writing and spending time with her dog, Max.
