If you’ve started your own business in the past year or so, congratulations. Starting a business is a huge achievement, and one you should be proud of—especially in today’s challenging economic times. Small businesses face many struggles at all stages of their growth, of course, but like freshly hatched baby chicks, fledgling companies are most vulnerable when they’re just starting out.
The Kauffman Foundation recently released its latest Kauffman Firm Survey and found one particular challenge startups are facing is a big one: they’re having problems getting paid. The study reports “an alarming increase” in the number of startups saying their biggest business challenge is customers who pay late—or don’t pay at all. That figure surged from 2 percent in 2008 to 14 percent in 2010.
While those numbers may sound relatively small, they’re a big deal if your business is the one facing the problem. Late-paying or non-paying customers can cripple a young company. What can you do if this happens to you? Here are four steps to getting paid what you’re owed.
Keep track of payment due dates (this is simpler than ever with accounting programs like QuickBooks) and contact the customer the day after a payment is late. Often, late payments are due to honest errors or oversights, and a quick email or call is all that’s needed to correct the problem and get the cash flowing.
Make sure your invoices are readable and clearly state amount due, due date, and where to make the payment. Include any PO or other numbers your vendor may require. (You’d be surprised how many companies leave out key points.)
Emailing bills and/or accepting ACH debit payments from vendors can speed the process of getting money into your business bank account by eliminating time physical invoices and checks spend in transit. ACH is simple to set up with your bank, and many vendors now prefer it.
If late payment is due to something bigger than a glitch, bite the bullet and discuss it openly with your vendor. Work out a payment plan that your customer can handle. Be polite, but persistent and tough. It may take time, but most companies want to do the right thing—they just need a nudge.
“Young firms’ are facing challenging financial conditions due to difficulty in receiving payments and limited access to credit to grow and thrive,” says Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, when announcing the study results. Don’t make it harder on your business than it needs to be to get the money you need to survive, thrive and grow.
Need help with any aspect of your accounting or collections? The mentors at SCORE have been there, done that. Visit the SCORE website to get matched with a mentor and get free business counseling 24/7.