Slow Payment

In an article in today’s Wall Street Journal called “Slow Payments Squeeze Small-Business Owners”, Kelly Spors documents what most small business owners already know: customers are delaying payments.

I have to agree with her assessment that big companies are especially negligent in paying small companies on time. After all, who has the leverage? This, by the way, is not just the result of the credit crunch. For the past several years I have seen a growing trend of large companies backing their payments up 30, 60, even 90 days. The problem is just worsening.

Unfortunately, Kelly only documents the problem – she does not offer suggestions for how small businesses can get any relief. The reality is that there is no one simple answer.

Some things I recommend to my clients are:

1. Press for an advance deposit. Especially when custom work is done or material must be procured, a fifty percent deposit is not unreasonable. Then, don’t start work until the cash is in hand.

2. Always ask for the most favorable terms – you may not get them, but you never know what may happen when you ask.

3. Make sure you have fully met your end of the contract by delivering what the customer wants and when you promised to deliver.

4. Be aggressive about collection. This does not mean being nasty or sicking a collection agent or attorney on the customer before it is appropriate to do so. I tell clients that the sqeeaking wheel gets the oil. So, start with phone calls a few days before the invoice is due to politely ask on what date the check will be written. If the check is not received when expected, follow up with another call. Keep calling until payment is made. Document each communication with the customer.

Will Limkemann