A Primer on Collecting Late Payments, Part 3
In my previous two posts on collecting late payments from customers and business partners I explained what I called the first and the second general rule to getting your money. If you haven't read them yet, and you are interested in getting better in this area, take a quick look and see whether you think following these guidelines can dramatically improve your results. In my experience, they can.
Just to paraphrase/summarize:
* Rule one emphasizes the overall importance of professionalism and good communication.
* Rule two stresses the value of making the payout and due dates a critical part of your formal agreement with the customer.
In this third article in the series I will cover both the third and the fourth general rule to help you get better in this area.
The third rule: An ounce of prevention is worth a pound of cure. Structure all of your business transactions so that you aren't left doing what Chris Harvey refers to as "Buying the keg." Buying the keg is a good metaphor for making agreements and transactions that put you into an unecessary and unnecessarily awkward position.
Matt Aaron's post of March 7 outlines another awkward situation where a contract was signed, but the customer announced during a phone call that he was making a change to the agreement. This example is an insidious variation of buying the keg known as "renegotiation on the fly." Be aware that some customers and business associates are very skilled in this area, and if you let them get away with it, it is likely a warning sign that more problems are in store for the future. You are riding a Ducati without a helmet. Watch out.
If your written agreement states (and it should) that no revision or amendment to the contract can be made unless it has been authorized in writing, it legally protects you from this kind of finagling.
In some lines of business you might be forced by your customer into "no cure, no pay" and payment within 60 days of delivery situations. Obviously you want to avoid these arrangements if possible as it increases your risk. If it's not possible, that doesn't automatically mean you shouldn't do the deal, but of course you can and should look to reducing your risk in other ways.
If it's realistic, requiring your customer make payment in advance, a downpayment or retainer is the way to go. In other types of businesses -- for example car repair -- the customer automatically leaves some collateral (his car) behind.
As part of the initial agreement itself (see rule two), do what you can to ensure you get paid as much of the contracted sum of money as early as possible. Of course, it is critical you keep your approach professional and add these payment conditions without being unnecessarily aggressive (see rule one).
The fourth general rule on collecting late payments is arguably the most important:
Stay right on top of the customer's missed payment deadlines.
This particular rule should be italicized.
While this statement is just common sense, 99 times out of 100 businesspeople still fail to understand why it is important and what it actually means. If have time in a future post I will explain the rule in more detail and show how you can avoid the most common mistakes and become the one percent who actually apply this rule correctly.
From a friend who is an established consultant, who has both worked for major consultancies and run his own shop. He gives us these useful pointers today -
"A Primer on Collecting Late Payments"
Anyone who has ever done business has had occasional difficulties collecting payments from customers. Experience shows that putting some attention (in advance) on a couple of key items can help resolve the lion's share of these issues.
First general rule: Your written communication style and professionalism can go a long way toward inducing unwilling customers to pay up more quickly than otherwise.
Let me clarify these two terms:
VantageScore was created by the 3 major credit bureaus to compete against FICO, which is used by the vast majority of lenders. The main advantage of VantageScore is that it's free and easily obtained. It is in version 3.0, and like FICO, is scored out 850 points.
Since VantageScore is used by less than 10% of lenders (this is changing, although FICO isn't going anywhere this decade), but easily obtained through any number of free sources, you should adjust your VantageScore to reflect your FICO score. The biggest difference is that credit inquiries are weighted far less by FICO.