How many times have you heard me say your small business is not a bank? Plenty I’m sure.

And although I encourage you not to sell to your customers on credit, I’m a realist and do understand it’s a must for many small business owners.

So I tapped into Ted Shalek, CFO of Smart Online, a company that specializes in technology based solutions for small business owners, who believes that the risks associated with selling on credit can be greatly reduced if the proper steps are followed.

“Since we do not all have the luxury of knowing and trusting each customer, we must take precautions to protect the cash flow of our small business,” said Shalek, an authority on small business. “If you do not know the customer, make sure that you obtain solid and confirmable information about the prospective customer by identifying their name, address, phone number, email address and business/credit references, credit card numbers if appropriate.”

Here are a few simple steps he recommends you take to significantly decrease the likelihood of future collections nightmares

>> Reminder Notice: Send out 7 days before the original, agreed upon payment date, if you have not received payment.

>> Read Receipts: In the email, let your customer know that you had an agreement, you provided the service or product on a timely basis and it is customer’s obligation to provide you with payment.

>> Stay Professional: Place a professional call to the buyer and/or the point person at your customer’s office. During the call, be firm and remember to state the facts and identify specific payment terms and times.

>> Appointments: If the amount owed is significant, make an appointment with the buyer to come by and collect the funds, and if they say the funds are not immediately available, keep the appointment and discuss specific payment terms and times.

>> Dramatic Impact: If the customer/buyer refuses to accept your calls and does not reply to emails requesting an appointment, stop by the customer’s office unexpectedly and tell them that you are prepared to wait on their premises until you receive payment or have a meeting with the owner, buyer or financial officer.

>> Collection Agency: Unfortunately, if the customer does not provide any positive feedback and refuses to acknowledge your communication, contact a reputable collection agency that will represent your company in a professional manner (remember that the collection company will retain a portion of the funds that collected from the customer).

Take care when selling on credit — and don’t forget you are not a bank. If it truly is necessary for your small business to grow, make sure you use proper care so you don’t set yourself up with collection problems down the road.

What do you think?

More on this topic:

1. Don’t Drive Cash Away From Your Business
2. Using Social Networks To Collect Your Money
3. Yes, Credit Is Still Available If Your Business Is In Good Shape
4. There’s Cash In Declined Sales
5. Become a Debt Collection Master and Collect More Money Today

Today’s economic landscape has caused additional collection problems for many small businesses. Late receivables have become the norm rather than the exception. It’s companies’ using an age old trick that can help when they are tight on cash flow — collect what is due as quickly as you can and pay your bills as slowly as you can get away with. And if your business is one of the companies being paid slowly, that can put you at risk.

So what can you do about it? First off, if you have not received payment by the due date on your invoice, get on it right away. Don’t let it languish. The longer you wait to deal with the issue, the less likely you are to be paid.

To circumvent this problem, some companies advise their customers that interest will be due on late accounts. But that’s a slippery slope and what rate you can charge is dependent upon the state you are located in. I was unable to find a definitive guide that would help you out, but there is a good resource listed by state over at Carreon & Associates in their credit library. To be totally safe and ensure you are within the law, it would be a good idea to run your decision by an attorney before you move forward.

More on this topic:

1. Cash Flow Management: You Can’t Afford To Be A Bank To Your Customers
2. How to Safely Choose a Collection Agency
3. Will Credit Card Profiling Kill Your Cash Flow Chances?
4. Timely Tips for Avoiding an IRS Audit from Tax Ninja
5. If You Aren’t Monitoring Your Customer’s Credit, You Should Be