It is not funny. I am tired of seeing small business owners get stiffed by their customers.  I am their biggest advocate and will work hard to get them paid. I am also really tired, however, of watching small business owners make the same mistakes again and again. Compounding my frustration is the fact that there are very simple things that small business owners can do to minimize the risk of bad debt in their business.

Customer Information – How does gathering information on your customer reduce the risk of default? Here is an example. Our client was a small trade contractor, a flooring specialist, who asked me to collect a large debt from a new customer. The only information they had on the customer was a first name and a cell phone number. Imagine – they did almost $10,000 in work and did not even get the customers last name or address! We were able to research and find the person, but he lived in another state, had no assets, no job. In short, there was nothing to get.  A little due diligence at the beginning puts you in the position to make a thoughtful decision on whether or not to provide credit.

Delay – For the same customer, the flooring people had a perfect opportunity to file a mechanic’s lien but waited too long. Mechanics must be filed within a certain time period (usually 90-120 days) and certain actions must be taken afterwards, with specifics varying by law.

Still another client of mine did work years ago for someone he knew well. He had heard she was having financial difficulties but she had paid him well in the past so he proceeded. He was paid for some of the work but then the payments stopped. He started to take legal action against her and she pleaded with him not to do that, as she was in the midst of a lawsuit and was expecting to a large settlement and would pay him in full when she received the money. He waited, and received no money. The debtor passed away and by the time he found out, his debt was beyond the statute of limitations, and was therefore uncollectible.

Other customers will delay taking action against delinquent customers and lose out.  Sometimes they want to avoid confrontation, or are too trusting of repeated excuses or promises of payment down the road. Others want to avoid paying a collection agency fee and strangely would rather have nothing rather than a percentage of their money.

No Contract – Contracts document the business arrangement and go a long way towards resolving payment disputes. I am currently working for an electrician who was brought in by a general contractor, a previously trusted source of business. He was instructed to bill the homeowner directly, but when he did the homeowner refused to pay, stating that the electrical work was meant to be included in the overall price he paid to the general contractor. Not one of the parties had anything in writing. The case will likely be settled in court, but at great expense.

At some point, every small business, even those with the very best credit practices, will get burnt by a non-paying customer. However, so many customer bad debts can be minimized, if not eliminated if you are vigilant and make some easy changes.

So don’t be foolish. You have a right to be paid. Protect your right!