Debt collection can be a relatively simple process if people want to pay you and have the means to do so. Customers who have simply gotten behind due to unforeseen expenses will, with a little push from you, may do the right thing. What happens if they don’t? What happens when a customer refuses to pay?
There are many factors that can incentivize customers to pay you. One of the most powerful tools you may have is leverage. Leverage is the ability to without future product or service until your bill is paid. Not all business owners have the opportunity to use leverage. If you do have leverage use it to help recover delinquent accounts receivables.
A classic example of using leverage to get paid comes from the movie Ghostbusters. A snooty hotel manager refuses to pay the exhorbitant bill presented to him for the removal of ghosts from his hotel ballroom. Bill Murray’s character, Dr Peter Venkman, offers to return the ghosts, which, of course would be disastrous for the hotel. Leverage!
Sometimes people give away their leverage, making it more difficult to get paid. Yesterday I received a new business inquiry who had obtained a small claims judgment but had not gotten paid. As we spoke, I learned that the judgment was against his former wife, who lived in the house with him along with their children. He was not willing to change his living situation, and I told him I thought in his current situation he had very little opportunity for payment.
Similarly, too many small business owners continue to provide customers with large outstanding balances product of service. Although in some cases, particularly in the medical field, it is difficult, perhaps impossible to deny service, it is important to set limits.
Here are some examples of customer debt collection using leverage successfully:
- Pediatrician requires payment on account in order for parent to receive camp or school physical form.
- Orthodontist requiring full payment for braces to be removed.
- On first cold day, home heating oil company requiring full payment on old balance before new fuel is delivered.
- Manufacturer combining new orders at a discount if old balance paid.
In some cases you can cut a customer off entirely. In other cases, you may only be able to limit them. Whatever you do, make certain to always require at least some payment. Remember, every time a customer makes a payment, they increase the statute of limitations, the time period you have to legally collect the debt.