Reducing the Risk of Nonpayment From a Customer

Unless your customer pays you in cash at the time of the sale, you will likely encounter a number of situations where the risk of nonpayment is significant. And for a small business, nonpayment can seriously impact profits and cash flow.

Here are some tips to reduce the risk of nonpayment:

• Send out bills as promptly as possible.
• Make sure that your bills clearly identify the goods or services rendered, the dates purchased, and any other relevant information.
• Follow-up reminders of past due notices should be sent immediately, with a big "Past Due" stamped on the cover of the notice.
• Make sure that you constantly monitor payments that are due. Click here to view a sample Accounts Receivable Aging report, or here to view a sample Accounts Receivable Monthly Customer Statement, that can help you keep track of overdue payments.
• Telephone the customer or accounts payable department and ask what you can do to speed up payment.
• Have a set of demand letters ready to send when payment is overdue.
• Consider compromising the amount owed or extending the time for payment if the customer has financial problems. If you do agree to extend time, insist on a periodic payment plan.
• Respond promptly, in writing, if the customer disputes the amount owed. Otherwise, you can lose some rights under various credit laws. If you decide to settle over a disputed amount, consider using a Settlement of Disputed Amount agreement. Click here to view a sample Settlement of Disputed Account form.
• Consider stopping any future sales to the customer unless the bill is paid or a compromise reached. Also, consider cash payment on delivery as a condition to any new sale.

No matter what steps you choose to take, remember to be courteous and professional. Just make sure to keep on top of the problem before it escalates.