You didn’t start your business to a mean bill collector, but there are times when you have to be. When your clients or customers are slow-paying or no-paying, then collecting on receivables can be a delicate procedure. First, review your accounts receivable to see who is delinquent. Send a reminder email to let your client know that the they have a bill outstanding. If that doesn´t work, then follow up with a polite but stern phone call. With small businesses, many new clients may be referrals from existing clients so your reputation may be at stake if you are rude while trying to collect payment. The personal touch of a call can be effective.
Another thing is to use initial meeting before taking on a client to figure out of the business is financially or mentally sound. You can tell by listening to what they. Trust your gut, and if someone seems shady, then they probably are.
Accounting-wise, you can set up a reserve account for bad debt expense called “Allowance For Doubtful Accounts”. This is GAAP accounting, and it is recommended that your allowance be at least equal to the balance of outstanding invoices over 4 months (120 days old). At the end of the year, you can write off the bad dept expense.