Bureau: Small Biz Collections Woes?

I have owned several small businesses in my time, some Not For Profit but most For Profit entities. The grand-daddy of all the problems experienced across the board were interjected when payment options for a service or product were permitted.

A lesson was learned very early that more than two payments would yield multiples more in potential collection concerns and follow through. What should a small business do to protect themselves while offering a service or product with multiple payments?


1. Keep the 40/60 fee split, but require the 40% up front and only provide an outline of the business plan. The client can then accept or sign-off on the outline and pay the remaining 60%, after which the full plan changes hands.


2. Bill 75% to 80% up front, write the plan and deliver it to the client, and then bill the remaining 20% to 25%.

The advantage here is that you get the majority of the payment up front, and the remaining fee is much less than the 60% you were originally invoicing on the back-end and having difficulty collecting.

But your business problems may run deeper than a pay and delivery schedule, according to Jeffrey Davis, founder of Mage LLC, a Mass.-based small-business consultancy. The source of trouble could lie either in your clients - or in you.

"If he's making the deliverable and [the client] isn't paying, he's not qualifying his clients properly," Davis says. "If he's qualified them properly on the deliverable and who they are, and they're not paying, it's because he's not delivering what he said he would. It's either one or the other."

Selecting the right clients and making sure they understand what they're getting can make a world of difference. Davis recommends that before starting a project you should know all of the following:

1. Is the potential customer a bona-fide client? (Can they and are they willing to pay? Do they have a legitimate need to commission a servicce order?)

2. Have you properly defined the deliverable, and has the client reviewed and agreed to the plan? Has the client seen and signed off on samples of your work? Are you sure they know what they are getting and have agreed to it?

3. Are you doing the work properly?

4. Do you have a tight enough contract with the client?

Look at your options to at least cover the cost of the service, leaving the profit portion to be paid at a later date or for that to make up the second or third payment.

Keep in mind, the advice of this bureau is to add automatic draft for multiple payments. More and more businesses are accepting automatic payments for balances due on products or services. Sweeten the deal and inform the client that there will be no additional processing charges for each remaining payment if funds are available as expected.

Make collecting payments work for you, easier on you and your staff.