If you’re struggling with cash flow issues, you’ll find the humor in this cartoon from Andertoons. Don’t you wish it was this simple?

Cartoons by Andertoons

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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.

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No small business can afford to be a bank, yet many of you extend credit each and every day to clients who want to pay Net 30 or more. If you simply must do business this way, take the time to learn about collecting and creditors’ rights before the unpaid bills start piling up.

“Many organizations are so focused on ‘getting the sale’ that they inadvertently do the wrong things,” says Bob Bernstein, managing partner of Bernstein Law Firm, P.C. “It’s understandable. There is an inherent tension between sales and credit, and until your company learns to defuse that tension, you’re going to keep making the same mistakes.” That means you need to pay attention. And Bernstein shares a few little-known creditors’ rights secrets below.

• If a company’s creditworthiness seems marginal, look for alternative pockets. Admittedly, it’s not advisable to extend credit to a company whose application sends up red flags. On the other hand, you need all the business you can get and risk-taking is integral to making money.
• Retain a purchase money security interest with a debtor. A purchase money security interest basically gives you a string on the merchandise and the proceeds.
• When a previously “good” customer stops paying, remember: communication trumps litigation. You don’t want to ruin a good long-term relationship over what might be a short-term customer problem.
• Don’t send a salesperson to do a collector’s job. It’s usually-not always-a bad idea to let your salespeople double as collectors.

“Remember, the biggest sale in the world means nothing until you get paid,” says Bernstein. “Getting paid is what makes companies successful.”

What do you have to add? Please leave a comment.

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