Titillating Tuesday Business Tip

with The Luvely Rae

Last year I transitioned my business from making the majority of it’s revenue via ticket sales, to making the majority of it’s revenue via sale of services. Out of almost 50 agreements sold there are a total of 3 which final payment has not been collected on. Now think about it. Let’s say you lost your job and you can’t pay your student loan this month. You figure, “well, I’ll pay when I can, it’s not like they are going to go out of business.” Now 6 months go by and you still haven’t paid your student loan. Apparently, neither have 20,000 other people. Now the company has employees who all have to be paid. Those employees need to be able to pay their bills on time. Now let’s imagine that instead of you owing money, you are the one owed money. Now let’s say you don’t have the insurance that the Student Loan company does, but you did do a proper Cash Flow analyis and you are okay for the next few months even if Jana Smith doesn’t pay you. Now, let’s imagine it’s not just Jane Smith that owes you money, but thanks to some bad checks, you are owed money by 5 people. Did your Cash Flow analysis account for all those failed payments to hit at the same time? Okay, this is an extremely simplistic look at collections (you owe, you pay),  but as you move your business away from $100 bar gigs, contracts and collections will become a necessity.

I am not going to talk about contracts here.

This Tuesday’s Titillating Business Tip is about: Collections for small business owners

For arguments sake let’s assume you have a stellar contract and you’ve collected your deposit. Let’s use a costume commission as an example. You customer was refered by another great customer. The deposit has been paid and due to some craziness your not getting the fabric on time (weather delay), the garment had to be delivered last minute to the client. Everyone is stressed, you left your Square at home and can’t swipe her credit card, so you copy it by hand because there’s no way to take a photo in the poorly lit room. You miss a digit on her credit card ow well, you’ll just contact her tomorrow. Only tomorrow comes and the credit card information is never updated. You no longer have the product. She’s not returning your phone calls or emails. Annoying.

Step #1– Decide who will collect the money

Now if the amount owed is more than $250 then you may prefer to employ an outside collections agency like Microbilt . Me personally, I would need $500 at stake before I would employee an agency, but that’s because the amount I’d lose in fees to the agency would be too hefty for me to consider a third party helping with a smaller amount.

Step #2– Check your communication for a clearly stated amount due and payment due date

So assuming you are collecting the money yourself, the next thing to do is to check those text messages, phone calls, and emails to make sure you have said, ” You have an outstanding balance of (insert amount) that is past due. Please remit payment by (insert date).” Seriously, if all your messages just say, “hey, there was a problem with your credit card. Can you call me when you get a chance?” Then the client is not being informed what the problem is and when you need the problem resolved by. Maybe she’s on her honeymoon wearing her new corset made by you, ignoring all phone calls, and thinking you got your money because you copied her card.

Step #3– Send official invoice marked past due/ outstanding

Even if you’ve already sent a nice little email stating the amount due and when it is due by, you need to send an official invoice. You do not have to wait on this one. You can send it immediately after the event if you want. Add a little statement stating “If payment has already been made please disregard this notice.” I personally use, “If payment has already been made please respond to this notice with the payment details including the amount paid, date payment was issue, method of payment, and remittance address”. If you paid by check, I want to know when you mailed that check, where you mailed it to, and whether you paid me the full amount you owe. Don’t disregard my invoice. Pick up a damn phone and let me know you paid. It has happened more than once that the check when to the wrong address.

Step #4- Restate the deadline

Remember we are dealing with past due items so if the payment was due, you need to determine how long you will wait before taking further action. Double check your state laws, but most states require that you make a resonable effort to collect payment before going to small claims court (there I said it, the C word). If you knew the bride was going to take a honeymoon after her wedding (after all shes purchased a corset for her honeymoon), then the courts will toss out your case if you try to file a lawsuit 4 days after product delivery. After all she was on her honeymoon which you knew about and the client was under the impression that you had been paid. My policy is 30 days and my invoice will state, “Payment is due upon receipt. If payment is not received within 30 days further action will be taken”.

Step #5– Send a Demand Notice

You patiently waited 30 days, but you know that your client is back in town and for whatever reason she has not made it a priority to get back to you. Grrr. Now send a Demand Notice. Again check your state laws. In NY I believe law requires a 10 day wait before I can file a lawsuit, but I state 14 days on my Demand Notice. Why wait an extra 4 days? Because the government has this thing about allowing for mail to be delivered. Especially if you live in the same city as your client. 2 days for them to get the letter and 2 days for them to mail payment with the correct postmark, is sufficient. Make sure your Demand Notice clearly states “Demand Notice” and that payment within (in my case 14 days) will result in legal action. You have to tell people you are planning on suing them. The Courts are big on that.

Step #6– File a lawsuit

Really? Did you make it here? WTF! 45 days and this person still hasn’t paid. Have you included the cost of legal action in your contract? No? Well you should. Of the 3 late payments due to me, all paid around step 5 (people don’t like to be sued), but there is one client that will require step #6. In fact right after being stiffed by this person, I added a statement to my contract that informs the client they will cover my legal fees should legal action take place. Banks do it. In fact I hate signing agreements that state I have to pay someone to sue me. However that little statement is just another way of saying, “hey please don’t screw me over” or “much cheaper to pay your bill on time”. If you are going to threaten to sue then be prepared to do so. If you’ve followed steps 1-6 then you’ll be ready.

Will post later on how my own case is going.