Some Advice For Small Businesses Hurt By Unpaid Contracts
As the chill of winter has settled in, and the holiday season is almost ended, many small business owners across the US are preparing to face their leanest months. While these months can be tough for businesses in a wide variety of industries, including retail where holiday shopping ebbs and landscaping businesses which must make the most out of snow removal, business owners who are waiting to be paid on outstanding contracts can be among the hardest hit of all. These businesses rely on timely payments for work that is either ongoing or already completed, but when the winter threatens financial strain not only for them, but for their clients as well, their collection of payments may be cut off. In these instances, businesses are often left with few other options than to try and work something out with their clients directly or file a lien, which is a time consuming and potentially costly way to recover owed assets.
A recent article from 9 News, Colorado, the case of a family in the kitchen remodeling business is examined. Faced with the burden of family medical expenses, their company went out of business due to late and non-payment on the part of their customers. Small businesses who have difficulty collecting often face similar consequences, even without the extra costs brought on my medical expense. So what can be done about the issue?
Before starting work, obtain a signed letter of payment. Having signed documents on hand is a must before you agree to provide any services. Without a legal signature, if the worst should happen and your customer refuse to pay you, you will have a much more difficult time securing your payment through legal action.
Stop working as soon as payment stops. You should not continue a job if payments have stopped coming in, no matter what your customer says. The more time you spend and material that go into to doing a job when payments have frozen, the more you are risking losing if they never start up again.
Create a collections letter. A letter (or two or three) informing customers of their delinquent payment status, and then the possibility of legal action against them if they continue to not pay can help your businesses recover some assets from your customers. If your customers have simply forgotten, these letters will remind them that they have a balance with your small business, and if they are trying to get away with ignoring the debt they owe you, a letter informing them of your serious intent to collect may reshuffle their financial priorities. In any case, reaching out to delinquent payers is the correct step to take before escalating to more serious legal action.
The winter can be a tough season all around. Small business owners should be proactive about their collections this time of year, especially if business has slowed. While maintaining good customer relationships is an essential part of doing business, nothing is more important than your continued ability to stay open, which depends on creating a positive cash flow.
Photo Credit to Andy Arthur on Flickr