Entrepreneurial Connection

			Return to NASE.org

Print Friendly Email to Friend

	How to Collect Business Debt
	Article 1: Preventing Deadbeat Debts Best of all, of course, is to prevent deadbeat debts from ever occurring. It’s not foolproof, but most nonpayment can be avoided by careful upfront vetting of new customers and by maintaining good communication. Start with a credit application, regardless of the deal’s value. After all, your time, money and resources go into producing your wares. Even a small no-show hurts your bottom line. A credit application helps you decide whether to do business with the customer at all, and later can provide leads for collecting delinquent bills, says Rosemary Taft-Milby, an attorney who manages the litigation and defense department in the Cleveland, Ohio, office of Weltman, Weinberg & Reis. She advises getting this list of information from potential customers: Complete name and address (not postal boxes) Office, cell phone and fax numbers E-mail address Type of business structure (whether the customer is a corporation, sole proprietor, etc.) Recent credit references Sales volume Bank name Social Security number or tax identification number And then, of course, check out everything. Information on payment histories also can be gleaned from credit bureau reports for individuals (you need written authorization first), or from Dunn & Bradstreet reports for corporations. Additionally, if the customer has a secured loan on property or business equipment, you can get an idea of company finances by pulling a UCC1 (Uniform Commercial Code) statement, usually available through individual secretaries of state offices. If anything odd comes up, or the company refuses to provide information, “You probably don’t want to do business with them. If there’s no assurance you will get paid, why take the risk?” Taft-Milby advises. Make sure you get a contract before beginning work, signed by an authorized person, who isn’t necessarily your company contact. Among other things, the contract should spell out payment terms, and state the interest rate charged for late payment. (The maximum percentage varies by state.) It could also provide for arbitration of collection disputes. Bill Koechling, who owns William Koechling Photography, a one-man photography company in the Chicago area, has a less-formal system he’s found effective: He Googles potential customers to check whether the business is legitimate. “Google is only a starting point, but you can get a good sense from it. It helps weed out potential problems,” he says. “If something doesn’t sound right, I bow out.” Koechling then sends the customer a detailed job estimate, which also serves as his contract because it “spells out everything I think I need.” If the client is new and the job requires high production costs and upfront expenses, he’ll also demand half-payment in advance. But the most effective way he’s found to get paid, says Koechling, is “communication all the way through, from negotiating fees, sending the contract, talking the job over—generally keeping communication going.”