Make sure you get paid on every transaction.


Times are tough.  Now more than ever, you need to make sure that you get paid for every product and service you provide.  Make no mistake about it- your clients and customers are watching THEIR cash flow closer today than in many years past.  So, you need to make sure that your customers’ cash flow difficulties don’t become your accounts receivable problems.


Every business has experienced some difficulty in getting paid at one point or another, and many business plans are formed with the presumption that a certain percentage of the business’ accounts receivable will go uncollected. The problem of collecting accounts receivable is not usually the cause of a business’ failure, as more businesses fail from undercapitalization.  However, collections problems can prevent a business from growing and will always negatively affect the business’ profitability.


So, how do you avoid the risks that an account receivable will become uncollectible? As is usually the case, preventing the problem from occurring is far less costly than curing the problem once a client or customer fails or refuses to pay you for your goods and services.  Try following these basic collections rules.


Get It In Writing.

Have signed contracts and forms.  Any change in terms should also be in writing and signed.


Get Paid In Advance.

You should require substantial deposits and down payments before you begin ordering parts or using materials. And you should require payment-in-full before you begin performing services or relinquish control of your property.


If You Don’t Get Paid In Advance, Get Security.

This rule does not apply to leasing agreements or the simple cash transaction such as the sale of a dozen doughnuts. In larger transactions, particular those involving the sale of moveable personal property and real estate, the seller should demand a security interest in something of value. A mortgage, a recorded land contract, a mechanic’s lien and a lien on personal property are familiar examples of security interests.


If The Customer is Credit Risky, Demand A Guarantee.

If you fear that a customer is a credit risk, ask for the signature of a guarantor who promises to pay the customer’s debt to you in the event the customer does not. Remember, however, that the guarantee is only as good as the guarantor is creditworthy.  An owner of a business is the natural person to guarantee the debt of his or her own company.


If Your Contract Does Not Allow For Collection Costs,

You Cannot Get Them.

The “American Rule” is that litigants pay their own attorneys’ fees. So, if you must retain an attorney to collect a debt, you will pay the attorneys’ fees and most other collections costs. The exceptions to the American Rule are the existence of a written contract allowing the recovery of attorneys’ fees, a statute allowing such recovery; or the assertion of a frivolous, unreasonable or groundless claim or defense. The easy solution to the American Rule is to include a provision in your contracts allowing YOU to recover your attorneys’ fees, collections and court costs. Your customers should not have the same right to recover against you.

The Check Is Never Truly In The Mail.

The lesson here is to begin legal proceedings as soon as possible and not to delay in collecting your money or retrieving your property.


Call Your Lawyer Early.

As a final suggestion, consult your attorneys as soon as you suspect difficulty in collecting a debt. Often a stern letter from an attorney on a law firm’s letterhead can have a dramatic effect on a delinquent customer. You also should consider consulting your attorneys to review your entire billing and collections processes. A good lawyer does his/her best work before problems arise.  I have assisted businesses whose agreements, leases and other forms were outdated or lacking important provisions which would allow the business to pursue additional remedies against a delinquent customer.  That’s when I’m most effective- in preventing problems rather than solving them.


For a more detailed version of this article/blog, go to my law firm’s website: