Credit customers, as I have said, can help your grow your business, and improve your cash flow. Of course, you have to make certain you give the best terms only to those customers who deserve them. For other customers, you may decide to limit how much credit you extend, or require a deposit. You will have to gather information on a prospective customer and use a customer contract to confirm your terms and conditions. Your contract should be in writing and must be bilateral, meaning both you and customer should sign it. Oral contracts are valid in most states, but if it is not in writing, and your customer’s recollection of the oral contract is different than yours, you have a problem. Your contract should include a clause about what will happen in the event of non-payment: finance charges, late fees, collection costs. If you do not have these items in a signed contract, you do not have the right to them.
Even with the best planning, there are customers who come along once in a while who simply are never going to pay you. 
They fall into several different categories:
Disputes – Theses are customers who dispute your balance, and refuse to pay. Certainly you can take them to court, but for certain customers, it may be too costly to do so. Also, if they have no assets in their name, you will wind up with a judgment you cannot collect. There is a saying that some people are “judgment proof”. Remember though, they may have nothing today, but will have something in the future. So take a good look at these customers and determine if the costs and effort are worth it, and revisit your decision a year from now.
Out of Statute – The statute of limitations is the period of time that you are legally able to collect a debt. In many states, it is 6 years. I do not know why anyone would wait 6 years or more, but it happens all the time. If someone makes a payment, even a small one, you “toll” the statute, which means it starts all over again. Also, if the customer has assets and it makes sense, you can take your case to court and obtain a judgment and you will then have another 10-20 years to collect your money. If you do nothing and let the statute expire, there is nothing you can do. Move on.
Out of Business – If your customer is a business, require a personal guarantee which means that the owners will be personally responsible if the company goes out of business. If you do not have a personal guarantee, then you may be stuck. However, check to make sure the business is in good standing in your state. You can usually find this on the website of your Secretary of State in your state. We currently have a case for a retailer who owes money, and who has let his corporate filing expire. Therefore, he is de facto doing business as person, not a corporation. Legally, he may be personally responsible for the debt.
Bankruptcy – It is important to know if a customer is filing a bankruptcy to get rid of, or discharge their debt, or if they are filing to reorganize the way they pay their debts. In the later case, you should file a claim and the court will notify you if you will be paid, and how much you will get paid.
In closing, there are still options in every case, but your options with these credit customers may be limited and time-sensitive. Make sure you stay on top of your receivables!
