small-business-marketing

I know that getting paid late is better than not getting paid at all. But for most small buisnesses, dealing with late payments is all too familiar -- and utterly miserable -- experience.

That's because slow payments leave a business in credit purgatory. Put your foot down too hard trying to collect, and you might sink a profitable business relationship. Yet if you decide not to rock the boat too much, you're volunteering to share somebody else's financial pain.

Fighting the Slow Payment Plague

What's worse is the fact that according to a recent National Federation of Independent Business survey, 40 percent of small businesses say their receivables are coming in at a slower pace. In many cases, clients are able to pay, but they want to hang onto their cash as long as possible in an uncertain economy.

You may not be able to eliminate slow payment problems, but you can certainly manage the risk. Here are four tips that are especially relevant to small businesses:

1. Start with an ounce of prevention. A customer credit check isn't useful just for avoiding deadbeats. It's also a great way to evaluate credit risk in terms of slow-paying customers. That's because customer credit data, when properly compiled and analyzed, can help to predict potential slow-payment scenarios well before they happen.

Bonus tip: Don't treat customer credit checks as a one-time affairs. It's important to conduct regular customer credit reviews, even with established customers, to catch potential problems.

2. Always get it in writing. Handshake or verbal agreements don't benefit anyone in the long run. Business circumstances can change, employees come and go, and "informal" agreements are difficult to enforce. That's why a written contract or letter of agreement is the single best risk management tool that any business - of any size - can have.

Bonus tip: Whatever else the agreement covers, make sure that it spells out - in plain English - payment dates and amounts.

3. Dangle a pre-payment discount carrot. Some businesses focus on late-payment penalties: late fees, interest charges, and the like. Others, however, have discovered that discounts for paying in advance are an even more effective way to avoid late payments.

Bonus tip: If a 10 percent pre-payment discount reduces late payment problems, then the discounts will pay for themselves - and then some.

4. Consider a credit-card backup requirement. Some businesses can ask customers to provide a credit card number when they sign a purchase agreement. If a payment is late, you can bill the customer's credit card instead - or simply arrange automatic credit card payments (possibly with a discount).

Bonus tip: This tactic has its limits, especially if you're dealing with a very large corporate customer. Apply it when and where you can, however, and it will play an important role in your collection and credit risk strategy.