When small business owners do not get paid, I understand it when they get angry or discouraged. When you extend credit to customers, you perform a service or provide a product based on trust. Your customer promises to pay, and you trust them. So when they do not pay you, it is a betrayal of trust, and it feels terrible.
Should you be embarrassed when you get stiffed?
I am told that business owners do not want to talk about bad debt in their business because they are embarrassed about it. I wonder what good it does to feel that way. In reality, you are in good company. A payment practices study from 2016 found that 93% of businesses experience late payments, and 46% of credit sales are paid late.
Feeling embarrassed might cause you to ignore or hide the fact that customers are not paying you. Unpaid and uncollected accounts receivables are a leading cause of small business failures. So hiding from the problem because you are embarrassed about it only hurts your business.
Is it your fault if customers do not pay you?
My mother used to say that you cannot change how people behave, but you can change how you react to them. People do not pay what they owe for many reasons, and while you cannot ever be certain who is going to pay you, you can take steps to protect your right to be paid for the work you do.
Make an informed decision on who gets the privilege of credit terms. Save your best terms for your best customers. Require a deposit from new customers and if the first transaction goes well, perhaps you can offer better credit terms the next time. Keep monitoring customer credit lines, and adjust when necessary.
Communicate your terms clearly in a customer contract before you do the work. Stay on top of your accounts receivables and have a plan to pursue overdue customers. Do not be afraid to hire a collection agency for any debts over 90 days.
Even if you do everything right, you still may get burned at times. But if you are proactive and diligent with credit customers rather than hiding from the problem, you will improve cash flow to your business, and that is something that will make you proud.