We can help with your small business's contract and collection methods to curtail rising accounts receivables caused by delinquent customers.

Often the most challenging part of operating a business is ensuring you get paid for your services. As a business chugs along month after month, it’s inevitable that a stack of past-due accounts receivables eventually grows. This is an unfortunate situation in which even the most business-savvy entrepreneurs find themselves with delinquent customers. Implementing a few best practices into your future customer dealings, agreements, and collection methods can help curtail rising receivables.

Here are some best practices in contract and collection methods which can help curtail rising accounts receivables caused by delinquent customers:

WRITTEN PLAN FOR ADDRESSING DELINQUENT ACCOUNTS. For starters, it is vital that your business implement a written plan for timely addressing delinquent accounts before they get out of hand. Every business should have a formal collection process in place to know the plan of attack on day one of the receivable and to have a consistent approach for all delinquent accounts. The goal should be that no past-due receivables are overlooked and ignored.

A collection policy need not be complicated or burdensome. In fact, the simpler the better. The point of the plan is to avoid procrastination on delinquent accounts and, therefore, to ensure action of some type is taken every so often. For example:

--10 days past due – phone call to debtor;

--20 days past due – follow up phone call to debtor;

--30 days past due – written demand letter to debtor;

--60 days past due – final notice demand letter to debtor;

--90 days past due – turn past-due account over to a lawyer.

IMPORTANT CUSTOMER INFORMATION FOR INCREASING COLLECTION SUCCESS. Once you have a formal written collection plan in place, the next step is to ensure your customer contracts and credit agreements contain the information you need to make it easier to collect the inevitable next delinquent account. When it comes to obtaining customer information, the more the better. This is where the old saying "An ounce of prevention is worth a pound of cure" comes to mind. Here is a non-exhaustive list of must-have customer information to request on your documents:

* Full legal name;

* Name of personal guarantor if customer is a business;

* Home address;

* Business address;

* Phone number(s);

* Email address(es);

* Banking institution with account numbers, branch name and location, and phone number;

* Trade references;

* Personal referrals;

* Disclosure of prior bankruptcy filings.

ADDITIONAL CONSIDERATIONS FOR YOUR CUSTOMER CONTRACTS. If possible based on your business, obtain a spouse’s signature on your contracts/agreements to include as an additional customer.

Don’t forget about the personal guarantee. If your customer is a corporation or other business entity you should have a personal guarantee section on your contract or credit agreement. The individual signing as the personal guarantor must sign in their individual capacity, not in their corporate capacity. Bottom line is that your business needs an individual that it can collect the debt from if the business entity goes out of business or has other financial difficulties.

Regarding interest and collection costs, you will want to ensure your contracts give your business the right to collect interest at the highest rate allowed by law. Your business should also consider including an attorney’s fees provision on its agreements. In Washington and Idaho, you are able to claim recovery of your collection costs and attorney’s fees so long as the underlying contract gives you the right to do so. But be aware that this type of provision works both ways. If you can claim prevailing party attorney’s fees from your customer, then your customer will be able to do the same against your business in the event the customer is the prevailing party. The reality is that for many businesses, without the ability to recover collection costs and attorney’s fees some debts just won’t be worth pursuing, which hurts the bottom line over time.

If you're a small business owner and need help collecting on some of your delinquent accounts receivables, give us a call at 253.858.5434 to see how we can help.