Is there anything more frustrating for small businesses today than delivering quality products and services on time only to have to deal with a customer paying late — or worse, not paying at all?

Cash flow for many businesses today is tight. Clients who pay slow, late or not at all can drain small businesses' resources and be a major source of problems.

There are two approaches for getting paid on time: Prevent the problem or deal with it.

Preventing Life with Deadbeats
"The best way to avoid having a client that pays late (or worse, one that never pays) is to not take them as a client in the first place," according to an article from DIME Consultants. Some prevention tips:

Screen prospective customers before starting to fill their order.
Get a commercial credit report. "The small investment in time and dollars will save you lots of hassles and potential losses," adds DIME. Also, if you have supply chain partners or belong to an industry association, you may want to consider asking around about the potential customer's reputation.

Communicate clearly about your way of transacting business.
If you offer a discount for early payment or, when volume discounts help spur sales, mention these emphatically, suggests a Financial Post article (via Canada's National Post). If your company adds a fee for balances over 30 days, show it clearly. Similarly, make note that if the customer doesn't pay within a specified period, you'll only deal with them for cash before delivery.

In addition, if you use the services of a bill collector and an attorney on retainer, let customers know. Word this carefully but accurately.

When you've delivered a product, bill for it that day.
If you don't do this, your company gives a message that income's not that important to the lifeblood of your business.

Make it easy for customers to pay.
Permit credit card payment, electronic funds transfer or e-card payments.

When Good Customers Go Bad
If you're using all the prevention tactics, but good customers let too much time pass before paying or you've inherited customers who drag their feet paying on time, the options call for finesse, assertiveness with politeness, persistence, understanding, knowledge and creativity. Also, recall that many financial counselors will tell your customers to pay as late as possible.

Last year, IMT offered some tips for achieving on-time payments. Two were covered above with the credit-check rule (always do it) and communicating your payment policies. Other pointers include:

Follow up with questions about why your customer delays payment.
Extra time or installment payments might be better than going to court immediately. When situations pose challenges, staying in contact with the customer regularly lets your contact know that your company deserves payment as soon as possible.

If repeated calling takes too much time or isn't leading to payment, contract with a collection agency. It may have methods that get results.

Seek legal help.
If collection attempts fail, "it may be time to turn to an attorney," says SCORE, counselors to small business. There's something about getting an e-mail message or letter from a law office that demands attention in an unequivocal way.

(For more on this, see the collections section of Pricing and Collections Need-to-Knows.)

"Many slow-paying customers seem to require multiple collection calls, reminders and cajoling in order to finally pay," as DIME Consultants has noted.

As with raising teenagers, customers require tough love. Start with love but communicate well and often as well as show toughness when it's appropriate.

Earlier: Pricing and Collections Need-to-Knows

Resources

How Do I Get My Customers to Pay on Time?
National Post, April 14, 2008

How to Get Your Customers to Pay You on Time
July 7, 2006

60-Second Guide to Collecting Payment
SCORE

Additional:

Encourage Your Customers to Pay on Time - And How to Recover the Debt if They Don't