Bad debt collection can co-exist with customer retention.

I recently met with the owner of a small landscape company. He told me that he was finalizing a bank loan. With interest, I asked if business was growing. He shook his head and said, “No. Just the opposite. My customers are not paying me and my cash flow is terrible. I need to borrow money to repair my equipment so that I can keep things going over the summer.”

Naturally I asked him why he did not try to collect his delinquent customers, either on his own, or with a collection agency.  He told me that he wanted to do it, but was afraid he would lose customers. Yes, you heard that right. He would rather go into debt than “lose” customers who owed him money.

I wish I could tell you that this fellow’s story was unique. It is not. Business owners would rather go into debt, forego pay and seriously put their business at risk because they fear asking customers for money. Bad debt collection is considered either too confrontational or just a bad business practice. A dentist client told me that she did not want to be someone who went after her clients for money. Patients who owed her money referred their friends who also did not pay. I told her that she had become someone that was selected because people knew she would not demand to be paid. Not a great business model!

Business owners also will keep taking on new jobs for customers who already owe them large sums. If a customer owes you money and comes to you for more work, they are asking for one of two reasons. First, they know they can get work for free. The other reason may be that they need or like your product. Sometimes it is a combination of the two factors.

No matter the reason, stop giving free work. Just stop!

If you are not being paid because someone is simply taking advantage of your good nature, you are not losing anything if they do not pay you. They are not a customer who values or respects your business.

If they want or need you, you can use your client’s desire for more work to leverage the sums owed you. Perhaps you can roll in a new project at a slightly discounted price if the client pays the old balance first. For example, if you are selling a monthly service, add a six-month package at the price of 5 months into the sum owed.

Consider an “amnesty” program by making a limited time offer to pay balances off with a discounted price. A small discount will likely be less than you would pay a collection agency or attorney, and will be less confrontational. Make sure you document that the offer is only available for a short period of time, and that further collection activity will be taken after the offer period expires.

Don’t close the door on all delinquent customers. If you really believe they are going through a hard time, stick with them if they are willing to agree to a repayment plan and keep up with the payments. If conditions improve, consider taking them back on either a cash basis or with a deposit or cosigner.

The most important thing is to remember that bad debt collection is not your enemy. You have a right to be paid. Protect that right!

Bad debt collection can co-exist with customer retention.

I recently met with the owner of a small landscape company. He told me that he was finalizing a bank loan. With interest, I asked if business was growing. He shook his head and said, “No. Just the opposite. My customers are not paying me and my cash flow is terrible. I need to borrow money to repair my equipment so that I can keep things going over the summer.”

Naturally I asked him why he did not try to collect his delinquent customers, either on his own, or with a collection agency.  He told me that he wanted to do it, but was afraid he would lose customers. Yes, you heard that right. He would rather go into debt than “lose” customers who owed him money.

I wish I could tell you that this fellow’s story was unique. It is not. Business owners would rather go into debt, forego pay and seriously put their business at risk because they fear asking customers for money. Bad debt collection is considered either too confrontational or just a bad business practice. A dentist client told me that she did not want to be someone who went after her clients for money. Patients who owed her money referred their friends who also did not pay. I told her that she had become someone that was selected because people knew she would not demand to be paid. Not a great business model!

Business owners also will keep taking on new jobs for customers who already owe them large sums. If a customer owes you money and comes to you for more work, they are asking for one of two reasons. First, they know they can get work for free. The other reason may be that they need or like your product. Sometimes it is a combination of the two factors.

No matter the reason, stop giving free work. Just stop!

If you are not being paid because someone is simply taking advantage of your good nature, you are not losing anything if they do not pay you. They are not a customer who values or respects your business.

If they want or need you, you can use your client’s desire for more work to leverage the sums owed you. Perhaps you can roll in a new project at a slightly discounted price if the client pays the old balance first. For example, if you are selling a monthly service, add a six-month package at the price of 5 months into the sum owed.

Consider an “amnesty” program by making a limited time offer to pay balances off with a discounted price. A small discount will likely be less than you would pay a collection agency or attorney, and will be less confrontational. Make sure you document that the offer is only available for a short period of time, and that further collection activity will be taken after the offer period expires.

Don’t close the door on all delinquent customers. If you really believe they are going through a hard time, stick with them if they are willing to agree to a repayment plan and keep up with the payments. If conditions improve, consider taking them back on either a cash basis or with a deposit or co-signer.

The most important thing is to remember that bad debt collection is not your enemy. You have a right to be paid. Protect that right!