What are the 5 Best Ways to Collect Invoices if you are a Small to Medium Size Business?
If your customers are late in paying you, this can cause major cashflow problems to your business. It can be difficult for you to anticipate the funds you will have available to meet your own obligations. To collect on your invoices as a small to mid-sized business, consider these five effective methods discussed below.1. Draft a Solid Contract
The best way to prevent payment problems is to have a solid contract in place before an invoice ever goes out. Having a well-drafted contract can also help ensure that you have important provisions included in your contract in case more serious collection efforts are necessary.
Your contract should clearly discuss:
Payment due dates
How disputes are handled
Expectations regarding payment
Your contract may also contain language that encourages early payment or discourages late payments. For example, you might offer a discount for early payment. Alternatively, you could include a provision regarding late fees or penalties.2. Report the Unpaid Debt
Sometimes customers or clients will not take the unpaid debt seriously unless there are direct consequences for non-payment. If you are working with an individual, you may choose to report the debt to the credit bureau. If your debtor is a business, you can report it to a business reporting bureau. Since this can result in the debtor being approved for credit down the line, they may be more likely to respond.3. Turn it Over to Collections
There are many collections companies that will happily take over your debt collection needs. While this option may not get you the full amount of the money you are owed and there is a cost associated with it, it can be an effective way to collect on many unpaid accounts. Additionally, many of these companies operate on a contingency-fee agreement in which their charge is based on the amount of money they have actually collected.4. Consider Alternative Dispute Resolution
Your contract may call for alternative dispute resolution such as arbitration or mediation in the event a dispute arises. Mediation involves a third party neutral professional who helps the parties better communicate in an effort to resolve their dispute outside the courtroom. This can also help clear up any misunderstandings with your customer or work out a solution to a problem, such as giving a customer who has experienced a financial setback a financial extension to repay.
Arbitration is similar to litigation, but the process is usually faster and cheaper. Additionally, the parties can choose someone with a background on contract law or business. They can agree whether the arbitrator’s decision is binding or non-binding.5. File a Lawsuit
If you are owed a large sum of money, it might be worth it to hire a lawyer to file a lawsuit on your behalf. Your Elgin, Illinois lawyer can prepare the necessary documents on your behalf and represent your interests in court.
Jonathan L. Carbary