Here are some ways you can improve the odds that you will be paid on time and for the amount agreed on. This is just as important as any other aspect of setting up and running a business, but one that many of us don’t like to think about.

If you are careless about which clients you give credit terms to, and careless about how you manage them, you can and will have some that pay late, some who only pay what they feel like paying and some who don’t pay at all.  Neglecting this aspect of your business can be a fatal mistake, because without payment from your clients, you don’t have the money to pay your suppliers, employees, and yourself.

This article is the first in a series.

Grab a pen and take notes:

Individual vs. Business Clients

There is a difference between when your client is a business, when you are dealing with individuals as consumers, and when you are in a regulated business or profession that is dealing with the public.  When dealing with businesses, you can exercise more control over the terms under which you accept, restrict, and manage clients; when dealing with individuals, there are Federal and state regulations that you must honor, and if you are in a regulated business or profession there are more rules to honor.  Nevertheless, you can apply these strategies and tactics to most situations:

Be Clear About How and When You Expect to be Paid

If you don’t tell your client what you expect of them, how do you expect them to do it?  Your clients should know up front what forms of payment you will accept, whether it is cash, check, credit card, insurance assignment, whether you will extend credit to the client, and on what terms.

Decide what your policy is, consult your business and legal experts to make sure it’s legally permitted, put it in writing, have your lawyer double-check it, and make sure that you and your staff communicate your policy clearly.  Since the rules will vary depending on the type of business you are in and where you are located, have an attorney that is familiar with this are of law prepare a written credit policy for you.  This isn’t a job you should just hand to the lawyer who handled a traffic ticket or your will.

• For example, if you are running a medical practice and a new patient is making an appointment, your staff should let them know what insurance plans you participate in, whether you expect full payment at time of service, or whether you will accept any copay/deductible at time of service and will accept assignment of payment from the insurance company.  Normal practice is to have the patient or responsible adult sign off on your written policy as part of patient intake.
• When accepting an individual as a client, you need to communicate a credit policy that complies with state and Federal rules, and fully discloses all terms, including due dates, interest rates, collection policies, and any other relevant terms.
• When accepting a business as a client, you potentially have more discretion regarding credit terms, but you still need to communicate them in a way that creates a valid binding agreement.