Entrepreneurs are some of the bravest people in the world. They strike out on their own and stake their livelihood on a dream in a world of unprecedented competitiveness, knowing full well their chances of failure are exceedingly high.
And when it comes to collecting debt, most startup owners are ill-prepared for what awaits them. Vendors are reluctant to grant credit to startups lacking a history, and customers can take advantage of your inexperience or lack of confidence, paying your bills after higher-priority ones with established partners. It’s a double-whammy many entrepreneurs never see coming.
Here are four steps every entrepreneur should take to improve their startup business’s probability of surviving those critical early years:
1. Use a Credit Application
Many entrepreneurs are so excited about signing up a new customer, they neglect to check credit-worthiness and reputation. As wonderful as it may feel to acquire new business, chasing bad debt is a needless waste of time and energy—and it’s money you cannot afford to lose. If your business extends credit, insist every new account completes an application that includes bank information, years in business and at least three relevant credit references. Here is a good sample credit application from the Credit Institute of Canada, of which MetCredit is a longtime member.
2. Always Do Credit Checks
Before delivering goods or services on any delayed payment terms, it is important to check the buyer’s credit. You are becoming a credit grantor by using your business’s money to provide financing for 30, 45, 60 days or longer—you have a right to manage that risk and decline any credit you find unsatisfactory. Dun & Bradstreet provides insight into any past lawsuits or liens, and gives a rating on how likely the business is to pay its bills. A number of reporting options are available at reasonable fees.
If your business serves the construction industry, be sure to download my additional 13 Tips for entrepreneurs in this especially volati sector by using the button below.
3. Send Late Payment Reminders
Most cloud-based accounting systems can automatically send overdue payment reminders. When these don’t yield immediate results, don’t delay. Send a 10-day demand letter using registered mail or a courier like Purolator or FedEx. When the customer has to sign for a document, they know you have proof of receipt, and the formality shows you are serious. Be clear about your next steps in the demand notice. In most cases that should include #4 below:
4. Use a Great Collection Agency
Unless you’re a natural at commercial debt collection, it is very important to have a reliable and ethical collection agency at the ready. Entrepreneurs tend to be overly optimistic about being automatically paid, and are thereby more lenient with delinquent accounts. Customers know this, and may take advantage. That’s where having a strict policy on sending overdue accounts for collection comes in. An independent third party can collect quickly, preserving your relationships and your brand reputation.
One fantastic tool you’ll find only at MetCredit is our easy online account submission app. It lets entrepreneurs of startups quickly submit accounts for collection, day or night. Drop us a note, and we’ll walk you through the easy steps.
Growing a new business is hard work, and is fraught with more than enough risks. Don’t let out-of-control receivables harm your chances of success and prosperity. For more help, download my 10 Pro Debt Collection Tips using the link below, or reach out to me or my helpful team members Canada-wide.