Friday, March 5th, 2021

Getting Paid

By Chris Green on Dec 01 2009 • Filed under Chris Green's Legal Basics

The bane of every small business owner’s existence is actually getting paid for the work she does. While the problem is universal, it seems to be most acute in the services sector, especially for those selling advice or specialized knowledge. There seems to be a general reluctance to pay for something the consumer can't see, touch, eat or feel. 

Let’s look at the clients who are causing the problem.

Certainly in a small percentage of cases the business owner is the victim of intentional fraud. The customer callously and deliberately sets out to defraud the service provider. The purchase is made without any intention of paying for it. Thankfully, these fraudsters are pretty rare. The vast majority of customers fully intend to pay when they order the service, but somehow, something has delayed the cheque that was supposed to be in the mail. 

See how many of these debtor profiles you can find on your own accounts receivable list : 

The sweet, foggy-headed bumbler: much worse than the fraud artist, this debtor is an amateur who has bumbled into the world of business without a clue. She has overextended herself without even knowing it, having only a vague notion as to the true state of her accounts payable, and none at all about her cash flow. 

The sky pilot: he's moving at mach one speed, leaving an untidy jet trail of debris behind him. A “big picture” sort of guy, he dreams big, and spends accordingly, confident that everyone is going to be paid when his venture finally takes off to the stars. 

The high roller: a cousin to the sky pilot, this guy's got flash – big talk, big bling, big car, big demands, big trouble. 

The charity case: bad luck or poor planning, it’s never clear why this type of customer has become so threadbare, but she's probably on your receivables list because you felt sorry for her due to a business or personal tragedy. Sadly, the catastrophe, and reason she can't pay you, is often because she got stiffed by one of her own accounts receivable. 

The grinder: this complainer has never had a satisfactory consumer experience. There was always something wrong with the product or service delivered, so why would he pay full price? How much of a discount are you prepared to offer in order to collect anything at all from this debtor? 

"The bane of every small business owner’s existence is actually getting paid for the work she does."

Most credit professionals agree that the starting point for managing your receivables list is knowing who your debtors are. If you are going to extend credit, make sure you have complete and accurate information about your customer. Are you dealing with a limited company or with an individual? Do you have complete address, phone and email particulars? Do you have banking information? 

Next, make sure you have a credit policy. Remember, you as the business owner set your terms of sale. You are not required to give credit to anyone, and many of the most successful businesses don't. If you must give credit, make sure your terms are carefully spelled out on your contract, quotation form or invoice. 

As your business matures, it is often a good idea to take a look at you customer base, with a view to firing some of your customers. Yes, that's right, fire your worst customers! After all, who needs the high rollers, the grinders and the charity cases? The space they occupy in your business could be filled instead with your ideal client!

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