When I see many small businesses trying to collect past due receivables, I also see mistakes. Mistakes in how they handle their customers. In most cases, these mistakes fall into three categories:

1) Being too easy,
2) Being too hard, or
3) Avoiding the task altogether.

At first glance, you may be asking, "Well if some are too easy and some are too hard, what is the answer?" Well, that's the $64,000 question, is it not? Depending upon the size of your business and the magnitude of your past due problem, you may very well be about to read the $64,000 answer!

The answer to the perplexing question is that every customer and every customer communication should be handled with the "3 F's." The "3 F's" are:

1) Firm,
2) Fair, and
3) Friendly.

You see, unless a customer is has communicated with you his unwillingness to pay due to some type of disagreement regarding the quality of the product or service, it is highly likely that being firm, fair and friendly will not only speed up the collection process this time, but also in the future. When customers are struggling, they appreciate being able to hold on to their dignity. Being inflexible, condescending, or making unreasonable demands or threats will often lead to even worse relations and a conscious or subconscious decision to put you at the end of the payment priority list.

On the other hand, it is also important that you be firm. Do not allow customers to push you around. And most of all, do NOT be embarrassed to contact them to ask for YOUR money. If they have taken delivery of your product or service and their is no issue regarding its quality, then this receivable and the underlying dollars belong to you.

As I have stated on several other occasions, I allowed two of my customers way too much slack. I allowed them to dictate the terms of the payment. I allowed them the opportunity to get "back on their feet" rather than being firm and asking for MY money. It cost me dearly. Nearly $40,000. Now, depending upon the size of your business, $40,000 may be a drop in the bucket or it could be a huge deal. For me, it was a VERY expensive lesson and one that put a crimp in my business's cash flow. Thankfully, it was not fatal and actually helped me to develop a system for collecting my receivables.

Not only did this experience lead me to find a better way to collect past due receivables, but also to develop a system to catch as many as possible before they become seriously past due. The only way to consistently keep your receivables under control is with a system.

The beauty of a system is that you always know exactly where you stand and you always know exactly what the next step is and when. You also know the type of communication that works best at each stage and you know when that communication will take place. Your customer also knows that this is not a "one and done" contact, but simply a step in a process. You'll never have to worry again about what to do at what point.

Sadly, most small businesses simply manage accounts receivable by the seat of their pants. They run their past due report once or twice a month if they think about it or if the bank account gets low. They call a few, send a letter to a few, and then lose interest when the bank account gets back up to a comfortable level. This is a temporary fix at best and will have to be repeated again and again while past dues are never properly managed. Only the bank account is managed.

The good news is you can HAVE a system. It may take a little time to develop it in the beginning, but it will be well worth your time and effort in the long run when you spend only a fraction of the time you normally spend trying to collect and in addition you collect the lion's share before they ever even become a problem. And that makes for a bigger bank account!