Accounts Receivable Collections
Collection Prevention Part 3
Not to be annoying but I have a couple more things to say about invoicing. Last month I failed to mention either terms or late fees. Both are important so I think it’s worth taking up a bit more space to talk about them.
First terms, you must include terms on your invoice. Due upon receipt doesn’t count as terms unless you don’t provide service or ship product until you’ve been paid.
For example, when we first started offering our prepaid collection letters we didn’t collect upfront. Our terms were due upon receipt. The order would come in and we’d send out the first demand and email the invoice at the same time. Much to my surprise and dismay we didn’t always get paid. And get this, the faster we were successful the more often we didn’t get paid. Not sure why I was surprised, we had the same problem when we collected on contingency. If we were successful too quickly our customers felt we hadn’t worked for the money and didn’t want to pay us. Don’t even get me started on how many ways that’s wrong.
In any case, you can avoid collection problems altogether by getting paid up front, but failing that, be sure to include reasonable terms or your customer will assign their own.
Our friends over at The Kaplan Group recommend putting this statement on every invoice “Accounts not paid within terms are subject to a ___% monthly finance charge.” We agree with one proviso, don’t automatically calculate late fees. This may work well for a large business with plentiful resources but for a small business you’ll create an accounting nightmare that just isn’t worth it. However, should you ever land in court with your customer having had the statement on the invoice will allow you to include and possibly win those late fees. Without the statement on the invoice the judge is unlikely to award late fees.
For more information on Small Claims errors check out “Small Claims Big Mistakes.” It’s in the Resources section of our website. We aren’t attorneys and we can’t give legal advice but we can share our experience with you – check it out.