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April 22, 2002
How to Get Yourself Paid
|Are your deadbeat debtors getting you down? Don't get mad, get even.|
It is amazing how many contracts are silent or vague on these essential points.
So now, despite your best efforts, it has happened: one of your customers has started paying slowly, or has stopped payments altogether, or is claiming that he is waiting to get payment from someone else and then he will pay you promptly. What do you do now?
Whether or not you are willing to negotiate with the debtor, you are not likely to get anywhere unless you first get the debtor's attention by demonstrating that he ignores his obligation to you at his peril. If you still are providing goods to a financially troubled customer on a regular basis, or if you are in the middle of a big project for a troubled client, the first thing you should do is stop. Big debts almost always start out as little debts, which become bigger and bigger as a business frantically keeps working for the customer in the vain hope that the situation will turn around. In the meantime, the business ignores other customers who are ready, willing and able to pay their bills on time.
If you have no leverage over your delinquent customer, you must become one of the "squeaky wheels" that gets their attention. Most debtors will find a way to pay off a creditor they fear, or who makes a bloody nuisance of themselves, especially if the debt amount is small.
You should not hesitate to call your debtor frequently and persistently until they respond. The federal Fair Debt Collection Practices Act and related state laws provide some guidance on what you can and cannot say in a collection call. A lot of these guidelines, however, apply only to collection agencies and consumer debts and do not prevent a small business from aggressively pursuing its own debt, especially if the debtor is another business.
You may threaten to file a disparaging report against the debtor with the major credit bureaus, as long as any such report is 100 percent true and accurate. If it isn't, your debtor may be able to sue you for libel, slander or violation of fair credit reporting laws.
Have your attorney send a "demand letter" stating your intent to sue the debtor if something isn't worked out to your satisfaction by a certain date. If the debtor is located in a faraway state, hire an attorney in that state to send the letter so the debtor knows you are willing to pursue him on his own home turf. Better yet, have your attorney send a draft summons and complaint (an actual court document) with the letter, and a demand for response in seven to 10 days in order to avoid litigation.
Finally, be prepared to sue, even if it's in small claims court. Of course, there is no guarantee you will win, but troubled debtors can usually tell if you are bluffing when you threaten to sue, and it's amazing how quickly their attitude adjusts when court papers are actually served. Make sure they know you are willing to make everyone's lives (including your own) miserable until you receive satisfaction.
In avoiding bad debts and problem customers, it's always best to remember the advice my immigrant grandmother once offered to me: "When you are dealing with people you do not know well, assume the worst; that way, any surprises you have will be pleasant ones."
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